Choosing the right offshore pension from more than 1,200 Qualifying Recognised Overseas Pension Schemes (QROPS) involves more than sticking a pin in a list and hoping for the best.
Although every QROPS is based on the official HM Revenue and Customs (HMRC) template, local regulators have introduced some subtle differences as well.
That means QROPS are not a one-size fits all financial product and any expat thinking about switching their retirement savings offshore needs to take some professional advice.
After all, what could go wrong?
Quite a lot of things, actually, ranging from tax and estate planning issues to inadvertent local rules.
Tax and residence issues
Tax is an important factor of QROPS planning for many individuals. The crucial point is QROPS are open to non-resident taxpayers with UK pension funds.
Expats are not always non-resident. Some international workers from Britain seconded overseas on assignment for a year or two may call themselves expats but they are not non-residents and do not qualify for a QROPS.
Estate planning across borders is also another complication. Loved ones can inherit unspent QROPS funds, but the tax treatment depends on where they live.
Local rules have also proved a thorn in the side of expats with QROPS.
For instance, thousands of pensions in Australia, France and Canada lost their QROPS status during the past 12 months because they failed the qualifying tests.
Taking professional advice
The main problem was pensions in these countries allow hardship payments or loans to retirement savers under 55 years old, making the scheme ineligible as a QROPS.
These examples confirm why expats with significant amounts of cash to transfer offshore need professional input from someone who understands the tax and residence implications of moving money around the world.
Some countries, like Australia, also insist that advice should come from someone holding a licence locally, not an adviser from another country.
Don’t let the examples deter you from making a QROPS transfer. Although some expats have made a hash of the switch, almost 110,000 have transferred £8.8 billion since the offshore pensions were introduced in April 2006.
With the right advice from a QROPS professional, transferring a pension offshore is not as bad as the idea first seems.