Financial Advice In Spain

QROPS Pensions – Rules & Regulations

QROPS pension schemes rules are strictly laid down and determine whether or not an overseas pension is given the status of Qualifying Recognised Overseas Pension Scheme (QROPS).  When expats such as ourselves are considering transferring their pension from the UK to an overseas pension scheme, complying with the rules is paramount.

A successful QROPS transfer

For a QROPS to be successful, each of us must take into account all of the following elements.  If a client does not receive proper advice on these elements before considering moving the UK pension, it is likely that the QROPS application will fail. Be aware of the numerous non-qualified “QROPS shops” opening along the Costas. This is a lucrative business for the providers and for the client/pension holder, but we should all deal only with fully qualified and authorised advisory firms. Please be aware of this vital aspect of your planning. Check the authorisation – is the adviser a member of the Chartered Insurance Institute (C.I.I.)? If so, ask to see their membership card. Is he/she UK and internationally qualified? Ask to see the proof!

The rules

The rules required to meet the Qualification standard are well documented but little understood by the wider public. Should an application be accepted we should be aware of two most important issues.

The first issue is the jurisdiction (resident country) of the QROPS. It may be a QROPS in Luxemburg, Guernsey, New Zealand for example. There are many other countries where QROPS are based – some less secure and desirable than others.  You do not have to be resident in the same country as your QROPS.  So for example, in Spain you can have a Guernsey QROPS. Resident status of the pension scheme may well have impact upon the security of the capital sum involved.

The second issue – an obstacle for many QROPS, has been the ability to transfer a  pension to where plan-holders are able to take the entire fund as a single payment.  Do not expect to be able to “pension bust” simply by moving to a QROPS.  It is a pension after all. Even UK rules allow for access to the entire fund for the over 60s in some circumstances without the need to transfer the fund abroad – this is for holders of smaller value funds only. The main advantage of a QROPS is that we do not have to buy an annuity at retirement.  This means any money left in the QROPS pot after death can be passed onto the family or other death beneficiaries.

Notes;

It should be noted though, that UK rules allow for similar choices (death and drawdown of income and cash) without the necessity of moving the pension fund abroad. This means in many circumstances we may initially deal with a QROPS enquiry, but ultimately, leave the pension fund within UK control and rules. (This is commonly the least costly route for each client.)

Clients who may wish to exercise control over their assets within their pension fund may prefer the QROPS route as this opens a ‘hands-on’, much wider and less ‘controlled’ investment choice.

Investment choices and options

Retirement may be imminent or some time off – What is a good investment for one part of the economic cycle will not be so attractive later. For example, as we approach retirement we may wish to move our investments to a lower risk environment. In retirement, typically, we will more than likely require income from pension fund. A good QROPS will allow access to thousands of funds thus opening opportunities before retirement and reducing risk as retirement approaches.

Our ongoing day-to-day service

Another factor often overlooked at the start of the QROPS.  In addition to the change of economic circumstances mentioned above, what happens if our own circumstances change?  Perhaps a move elsewhere – or even a return to the UK.

What do we need to do to start taking benefits for our QROPS pension? In all these circumstances, and many more, you will need ongoing advice.

Retirement

Options include – how much of the fund do we wish to take in cash? Withdrawals from your investments in a QROPs range from zero to 100% of a figure provided by the Government Actuary Department (GAD). This maximum figure is calculated using interest rates at the time of retirement and your age amongst other factors.

Death

All QROPS families will have to deal with this issue at some time!  Typically, the Spouse will continue taking the full pension on the death of the QROPS holder. With many conventional pensions, the widows/widowers pension is only half or less of the original.
Finally, as with many aspects of pension planning whilst there are rules, how these rules apply to you is the important factor in the decision making process.  Choose an adviser who is not only qualified, but understands both the QROPS and UK pension rules and legislation and just as importantly, how each individual client would like to see their pension fund invested and ultimately taken.

Country Risk vs. Company Risk

In the same way as a company has a set of accounts, so in effect, does each country. 

Every country has a balance-sheet which includes it´s assets and liabilities.                A simplified version lets us examine the current “crisis” and assess some of the risk. 

A State’s profit & loss ‘Balance-Sheet’ Account

Raising Money vs. State Expenditure

Taxation                                                                          Education budget

Bonds (capital raising from the markets)          Health budget

Sale of Assets (e.g. state owned buildings)       Defence budget

Interest on past loans or bonds                             Bail outs and rescues

We can easily see that if a country has to bail out a bank this can be a drain on the Government´s finances and make the situation worse.  There is a direct relationship between bank bail outs/rescues and a State’s financial health. (This creates a sovereign debt)

To improve its finances a Government can cut expenditure.  Examples include pay cuts for public servants and reduced spending, reducing the pensions of public paid employees.

Whilst most countries are raising tax, many are also raising capital by borrowing more/ issuing bonds.  In some cases, such as Ireland, this capital raising is simply to repay other loans and bonds that have reached their maturity and the country is obliged to repay at the prescribed time.  It is the ability or potential inability of a country to repay the loan which is the most important factor in a sovereign financial crisis.

A company has an increase in it expenditure if the cost of its raw materials rises. These raw materials include the cost of employing the workforce, purchased and other items.

Many companies which rely heavily on Government contracts are currently very nervous about the degree of austerity measures but many companies have found their income has held up relatively well.  Production lines for many companies are holding up as the demand for their products continues to surge in the Far East and other developing nations.

How should we apply the above scenarios to the financial sector?

When deposit money into our own bank accounts we expect that money is still “ours”.  The account is in fact just a simple method of recording how much we have invested and are owed by that bank.  What has actually happened is to agree that the bank can use the money for any purpose it sees fits in return for a service, for example the payment of interest.  Thus if a bank then lends it to a person or government that defaults the bank needs money in its reserves to cover the shortfall when it in turn needs to repay the account holder. When the defaults get so big that there is no money left in the reserve, account holders will not get their money back. In this event, for many banks, there is a fall back onto a compensation scheme. These schemes were put in place when Government credit ratings were good and they also had reserves. 

A Government with sovereign debt problems may raise taxation, issue bonds and even print money as we have seen in the past and is happening now.

This is a way of simplifying the current world sovereign debt crisis and the impact it has on us all. When making investment decisions we should consider:

Governments can be brought down by having to bail out or rescue banks

Governments cannot bring down a company unless that company relies upon government contracts for most of its income

When you pay money into the bank, you are giving the bank authority to use the money as they wish.

We are currently seeking to expand and expect to recruit a fully qualified (UK) financial adviser.

If you are looking to develop your own practice in Spain, or even start afresh in the Costa Blanca, why not give us a call and discuss what we are able to offer. Alternatively, send a copy of your CV to our email address and we will arrange a meeting.

We look forward to hearing from you.

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• Contact a doctor (if the police do not) who will certify the cause of death and issue a certificate of death

• A funeral service may be arranged at a tanatorio who will arrange to remove the body

• Register the death within 24 hours at the Civil Registry (Registro Civil) which is located in the local local Town Hall

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