QROPS: Flexible Drawdown – A closing door or a brand new room?

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One thing you come to expect in the finance industry is change. Dull words like legislation and regulation are bounded about daily and we all nod accordingly, with that knowing look of ‘here we go again’. Legislation changes can often be an unadulterated pain the neck that we react to but don’t often celebrate. This is amplified in the offshore world, and sadly has been known to develop into a concern for the people we work for, the client. Unfortunately an offshore IFA has been on occasion stigmatised, negatively stereotyped almost. We can be deemed a one hit wonder by clients who, potentially haven’t had the best advice from their last consultant; the attraction of up front commissions has led to barely qualified advisors distributing shot gun ‘advice’ and disappearing into the mist, never to be seen or heard of again. This is of-course entirely unacceptable; the very nature of financial planning requires advisors to build up ongoing relationships with clients. To then revisit them throughout their lives and ascertain whether or not they are on track to achieve their goals, the goals that you, as their advisor, should not only be aware of, but should understand completely. The latest change to legislation could, and potentially will, be seen by ‘said one hit wonder’ offshore IFA as a negative to the way he or she does their job; however any advisor worth their salt should see where one door closes another opens up.

Currently under consultation is the proposal that Maltese QROPS will no longer allow retirement from the age 50 but all QROPS will allow flexible drawdown from age 55, in line with the recent changes to UK pensions. This leaves a fairly obvious loophole, there may be the savvy pensioner who at 55 transfers every penny from his UK pension pot, sticks it directly into a QROPS, moves offshore and draws it tax-free, with a rather large smile on his face. No doubt HMRC should see this coming and the next step must therefore, be the closure of the obvious loophole of flexible drawdown in tax havens. That said, there is as of yet, nothing outlined as to how this will be done. The British Government are of course going to want to claw that tax back it would cause all kind of trouble and lost revenue if not. Although it will be difficult to initiate and legislate, and the practicalities still remain to be seen, one would surmise that by removing the tax relief previously attached to the UK pension from anyone who transfers their pension into a QROPS, the issue may be resolved.

As international advisors we seek solutions to reduce UK limitations, but HMRC legislation can and often does, have an impact on offshore financial planning. With the introduction of flexible drawdown on QROPS, said impact is likely to be colossal, with clients needing more and more advisory support to and through retirement. This could lead to the recognition of the importance of ongoing charging in the offshore world, and will emphasise the value of referrals for you, the IFA. Thus allowing you to confidently build up a client base, who are already confident in your abilities.

One would hope that in these never ending times of legislative change, IFA’s will not see the amendments as negative, but rather as a positive for at least two reasons, firstly it will allow you to the build long term sustainable relationships with your clients. Secondly you will be guaranteed a monthly income without the pressure of chasing for the next sale.