Intro
At Cameron James, we have recently come across some concerning trends regarding the advice being given, both formally and informally, to Brite Advisors USA clients who hold assets in a Maltese QROPS, such as the STM Malta (US) Retirement Plan.
Specifically, the advice to transfer the QROPS back into a UK pension. While this is often a strategy we endorse for typical QROPS clients, recent IRS scrutiny of Malta, particularly concerning US residents using QROPS, makes this in our view an objectively poor piece of advice, as we will explain below. This situation also gives rise to serious concerns about the knowledge and/or integrity of the advisors recommending this course of action, which we will also expand on later.
Now, before we go into this further, I just want to make sure that it is crystal clear that this article is predominantly aimed at those US Residents who now have possession of a Maltese QROPS, and does not apply (except for the general commentary) to QROPS members resident in other countries, like the UK or Europe. There is still lots of tangential information that will be helpful for other Brite Advisors victims, but US Resident QROPS clients are the main focus.
We would also like to once again take this as an opportunity to emphasise the critical importance of seeking independent tax advice when dealing with cross-border financial planning, particularly involving QROPS. Each individual's circumstances are unique, even though the experiences of our intended audience may appear rather homogeneous. And, in relation to that, please be vigilant and sceptical of “in-house” tax advice, as in our experience it is often poor and littered with conflicts of interest. Moreover, such advice is, as is tax advice in general, lacking in regulation and extensively filled with disclaimers should it be incorrect. Therefore, independent, professional tax advice is the best route to take in our view.
Cameron James Usual Thoughts on the Debate
As many people will know from having discussed this with our advisers, as well as seeing the copious amounts of content we put out there on YouTube and in blogs, we are incredibly pro-SIPP when it comes to the choice of SIPP or a QROPS.
Now, these days this debate really only applies to a few select jurisdictions due to the Overseas Transfer Charge, but the general reasons for our dislike of them hold up no matter how far back in history you go.
Considering that, in our view, the primary benefit outside a few jurisdictions, such as Australia, is to mitigate the impact of the Lifetime Allowance, most QROPS advice we've seen—while not necessarily inappropriate (excluding US residents, where Brite Advisors USA and previous iterations are exceptions)—is clearly suboptimal compared to using a UK pension like a SIPP.
The main reasons for this include: higher fees, lower regulatory oversight and protection, inadequate due diligence on introducers and proclaimed advantages (such as currency options, withdrawals to non-UK bank accounts, and gross withdrawals) that are also available through Non-UK Resident UK Pensions (colloquially known as ‘International SIPPs').
Moreover, QROPS have historically facilitated excessively high commissions through offshore bonds, a concern highlighted in our reviews of many Brite Advisors' original advice to QROPS clients. They also pose challenges in terms of transfers out and obtaining regulated advice, especially if you move back to the UK.
The benefits of a QROPS beyond the now non-existent Lifetime Allowance are quite subjective. They are often recommended in our view primarily to benefit advisers' “financial well-being” rather than the clients themselves. The move to a QROPS makes clients ‘stickier' due to limited transfer options, potentially generating higher fees and commissions for advisers who have a client who finds it “harder to escape” especially if stuck inside an offshore bond with high deferred initial commissions (often mischaracterised as “exit penalties” to hide the source for the charge, which is the original adviser). There are however exceptions for certain jurisdictions and types of existing overseas pensions (which might not be transferable, or want to be transferred, to a UK Pension), thus complicating matters further, but that is not relevant for Brite Advisors USA clients.
In general, if you aren’t significantly exceeding the old Lifetime Allowance (considering the risk of its potential return and significant chunks of growth getting a 25% haircut from HMRC), transferring back to a UK pension is likely the most suitable advice. This move can potentially reduce fees, enhance regulatory oversight and protections, increase flexibility in benefit and death benefit options and generally provide peace of mind.
However, for US Residents, all of that is completely irrelevant at this stage, as the risks and costs of transferring are just so large, any of those benefits very well could, if not will, pale into insignificance in comparison to the financial and emotional penalties they could trigger, and that is all down to the Internal Revenue Service (IRS).
IRS Scrutiny
As it has already been well documented, there are major question marks about Maltese QROPS being held by US Residents, with the IRS now actively investigating Pension Providers in Malta, have even included them in one of their infamous “Dirty Dozen” lists, and are now actively reviewing those who hold such pensions that they are investigating.
We don’t know what the fall-out is going to be, as the investigations are still ongoing, and whilst there is a lot of published commentary from the IRS and Treasury, including for those with QROPS funded with UK pension assets, and not just the other types of Maltese Pension, namely Qualified Non-UK Pension Schemes (QNUPS) and International Pension Plans (IPP’s) which are the true cause of their ire, we don’t ultimately know what repercussions will befall those who transferred into a Maltese QROPS as a US Resident, nor what ongoing obligations it will bring about in regard to personal financial/tax reporting, but we do know that these unanswered questions mean that those who find themselves in the crosshairs, even if through no fault of their own, need to be 100% squeaky clean, and be on their proverbial “best behaviour.”
Cameron James & Pension/Tax Experts View
It is our view, and the view of every tax professional and pension expert whose opinion and expertise we value, that transferring out of a Maltese QROPS and back into a UK pension for a US Resident, at this stage, with all these unanswered questions from the IRS investigations, would be potentially catastrophic.
One tax adviser told us “that would look like you were trying to sneak out the back door by the IRS” which could open the door to all sorts of potential penalties and additional scrutiny, and perhaps even to the level of criminality, as some tax advisers have postulated.
For the sake of saving c.£1,000 a year, if that, it really is an incredibly irresponsibly advised course of action, as to save that £1,000, there is not an insignificant chance you cost yourself tens, if not hundreds of thousands of pounds, for those with larger pensions, and a lifetime of additional scrutiny and hassle from the IRS. The risk and reward simply isn’t there.
I know some advisers might be selling you on the idea that getting out now will mean the “Malta problem” will go away, but that all but certainly is not true. We know there is a lot of scrutiny around the original transfers, although we don’t know what the penalties will be, if any. The proposed legislation, which is still being reviewed and under discussion with all parties involved, indicates that those who transferred in whilst Resident in the US (there seems to be a carve out for those in a QROPS who then relocated to the US) could have lots of other obligations and issues to resolve, and we know that it is incredibly likely, from speaking with Scheme members, that even those of you who have failed to report the pension on your Tax documents, such as your 3520-a, will still be known to the IRS, so there really does appear to be no scenario where magically pretending you were never in Malta and always in the UK to begin with, is ever going to happen.
Given that there are potential issues with the original transfer (and, again, we suggest you seek legal advice and tax advice on that), it very well be could be the case, especially as this would technically be yet another transfer to a third country i.e. the UK, that you enter into yet another unauthorised or “listed” transfer, causing yet more IRS scrutiny and/or financial penalty. Tax advisers we have spoken with can’t see any reason why if the IRS holds that the original transfer was not allowable, that a return transfer wouldn’t be potentially be classified the exact same way.
Another aspect, though secondary, is that if the UK government does decide to reintroduce the Life Time Allowance, many of you with larger pension values exceeding the old limit could end up not only writing a cheque to the IRS at some point but also another substantial one to HMRC, adding insult to injury.
One Tax Specialist we have spoken with, who ran one of the seminars linked to on YouTube above, and who may be able to help you is a chap called Mishkin Santa. His profile is visible here. Whilst we can’t vouch for the quality of their service, in our conversations, he and his firm appear to be very much on the ball with all these issues, very knowledgeable, and also understand your situation very well, and should be a good source of information for you on how to approach your situation. Again, this is not an endorsement, and we have zero links nor financial incentive to connect you, we just know from our conversations that many QROPS clients don’t really know where to start with their reporting and what action to take, and so we are trying to help push you towards starting that process, if necessary.
Why Would the Adviser have told me to use a SIPP over a QROPS?
As far as we can see, and tax specialists we ran our thought process by were in complete agreement, there are really only two reasons someone might advise you to move to a SIPP. One is ignorance—they simply don’t know about all the IRS information and haven’t spent time properly researching the best course of action. Whilst the other reason is that they are putting their own interests above those of their clients.
Ignorance is, of course, inexcusable, but it wouldn’t shock me (and I hope this is the reason) if these advisers just don’t know any better. The other reason could be that the adviser knows a QROPS is more suitable, but due to alternative motives, such as being unable to work with QROPS providers or lacking insurance cover to provide advice on QROPS, they are advising a SIPP because it's the only way they can generate revenue from you. Alternatively, they may be able to work with QROPS but are advising a SIPP because every other adviser is recommending staying in a QROPS. They might be selling you on the generic reasons I mentioned above, despite the significant risks involved.
Perhaps there is a third option, like they have received tax advice that it’s OK and are relying on that, but we would classify that under ignorant, as tax advice is not regulated, there is no ombudsman, and when there is lots of information indicating it’s likely a bad idea, relying on the opinion of one tax adviser, or tax advice firm, that is being contrarian against such an overwhelming consensus, especially given the risk, is reckless.
Due Diligence
Again, we have mentioned this before to clients we have spoken to, whilst I have also referenced it in some of our YouTube Videos, but there are two really helpful Facebook Groups that you should have a look at, and consider joining.
The first is a group that was set up for victims and prospective clients of expat focused advisers to share their stories, and seek help. That group is accessible here. There is a good chance that any advisers you are considering using are mentioned in that group, and the group is not always negative, many firms get positive comments as well. You can use that to aid you in your due diligence. There are myriad victims, experts and helpful financial advisers (including yours truly) in there who help provide guidance and help to those that post.
I would however warn you that the group is monitored by advisers, with some of the “good” kind but also others who don’t fit that bill. The group, quite rightly, has a blanket ban of solicitation or direct contact so if you get any approaches, whether publicly in a group post or privately via direct message, please block the message and report that person to the admins, so they can protect group members from those unscrupulous advisers.
The next group is a private group for Brite Clients that you can only access after sending one of their admins a direct message and passing all their vetting to confirm that you are indeed a Brite Advisors client. If you post in the Facebook group mentioned above, someone will comment with the name of the admin you need to get in touch with to seek approval to join. I do not know that groups name, nor do I have access to it, as it is a safe place for Brite Advisors victims.
The Brite group is there to share information on Brite, help conduct due diligence together (it would not surprise me if many of you reading this, who are not in this group but have already chosen an adviser, reconsider your decision after hearing from other members about their experiences.). We are still seeing poor advice, with lesser platforms and providers, or poorly disclosed fees or structures, including missing underlying fund charges. We have even come across Brite members being told their advised platform is FCA regulated, when it is in fact regulated in the Isle of Man, and other similar stories. Therefore, using every available tool to conduct thorough due diligence is vital.
What should you do now
I hate to sound like a broken record but as we've emphasised from the start, it's crucial to do your homework and ensure you're working with an adviser who is knowledgeable, honest and prioritises your best interests, i.e. a fiduciary. In our opinion, advising a SIPP would fail on many counts, though we'll let you decide for yourself!
We think the best course of action is to remain in a Maltese QROPS. Clients who have gone through our advice process will know exactly what we mean by that, and what investment options and advice we are providing. Our focus is on ensuring your assets are as secure as possible, within an FCA-regulated platform, rather than in an offshore Bond, as several providers of these are currently facing litigation and regulatory actions, or on Offshore platform, and as far as we are aware, our preferred platform is the only FCA regulated platform available for QROPS. There are other platforms out there, some even with large brands behind them, but they are all based offshore, and lack the protection and regulation that an FCA Regulated platform provides. And, in keeping with our ethos at Cameron James, and especially when dealing with Brite clients and what you have had to go through, we are channelling our inner Kirsty and Phil when we say the main focus right now is protection, protection, protection, and regulation, regulation, regulation!
This way you are making the best of the bad situation, have your retirement assets as secured as possible, and are protecting yourself as best as possible from further IRS scrutiny whilst they finalise their investigations. Once the investigations are complete and the new rules/laws/memos in place as to what the official position is, then you can revisit a potential transfer back to a UK pension, but only if the IRS decisions make that suitable for you, and there are no financial/reporting issues, which there very likely will be. Trust us, no one would prefer you to be rid of a QROPS more than myself and Cameron James but taking that course of action now is a reckless risk. No adviser should recommend it, as it is indefensible.
There is still lots to be sorted out with the Receivership, with many pertinent points also being brought to their attention by the administrators for the Brite QROPS schemes in Gibraltar, that give us the impression we are still quite a way away from the funds being distributed, so you still need to have patience and conduct thorough due diligence.
Whilst we appreciate that Brite Advisors USA recently wrote to their clients telling them they are no longer going to be able to serve them going forward, and to appoint a new adviser to their schemes, that does not mean you need to panic and rush into appointing a new adviser.
If you would like to speak to one of our advisers, you can book an appointment on the link below.
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