Oil & Gas Industries

Oil & Gas Industries Specific Pension Information

Many oil and gas employees are members of final salary schemes, examples being BP and Shell. These schemes provide valuable benefits and protections that are unlikely to be matched by transferring to private schemes, such SIPPs or QROPS. Whilst it is wholly appropriate for those, not of a cautious disposition, to consider their options there have to be good reasons for moving away from the guarantees on offer.

KEY POINT:  Advice on final salary schemes should only ever be given by those with the specialist pension qualification in the relevant country. It has become common practice for offshore salesmen with no qualifications to refer the advice to a “Spanish company” and suggest that the Defined Benefit advice being offered is appropriate. You should seriously question this and your protections and if the answer is that you can complain to the Spanish regulator, then be aware that in a recent case, the Spanish regulator said they had no jurisdiction over a British pension transfer, whilst the UK FOS also said they had no jurisdiction. We would argue that anyone transferring should talk to the UK adviser signing it off, and ask for their UK terms of business, or client agreement, and accept nothing less.

Oil & Gas Industries Tax considerations

Shell Overseas Contributory Pension Fund (SOCPF)

Those that have accrued benefits in the SOCPF, having worked in The Netherlands need specialist tax advice before transferring (or ‘buying off’) their accrued pension. There could be severe tax consequences.

KEY POINT:  Don’t listen to the hype that moving your pension offshore somehow saves you tax, it is the Double Tax Treaty between your residency at retirement and the jurisdiction of your pension that dictates the tax that is payable. Not the product!

Offshore Investment bonds, or Offshore Insurance Bonds

Those who have been sold offshore insurance bonds, who later return to the UK, need urgent tax advice in the tax year before their planned return to ensure that they are not personalised bonds subject to penal tax rates.

KEY POINT:  Time Apportionment Relief is available in the UK, for certain investments that have gained a profit offshore , that allows for lower tax on profit- however, careful planning is required as additional tax on unmade profits could be payable. Time Apportionment relief can be used for capital gains, and is not linked to any particular product or investment, rather any asset.

Oil & Gas Industries specific Investment Strategies

Offshore Investment bonds, or Offshore Insurance Bonds (known as wrappers) that are sold on a commission basis should not be used for investments, nor pensions that are transferred. Commission based bonds are often opaque and expensive, with hefty exit fees in the early years. The fact is that where an Offshore Investment bonds, or Offshore Insurance Bonds is appropriate it can be obtained from the same providers without commission and far reduced annual cost, thus reducing the risk required to obtain the same returns.

KEY POINT: In many jurisdictions, Offshore Investment bonds, or Offshore Insurance Bonds are not recognised by the local tax authorities and provide no tax savings at all, limited benefits, and limited assets available for investment. Where they do hold a wider range of assets they can often become classed as “Personalised bonds” which will lead to further advice being required upon return to UK to avoid penal tax rates.

KEY POINT: Time Apportionment Relief is available in the UK, for certain investments that have gained a profit offshore , that allows for lower tax on profit- however, careful planning is required as additional tax on unmade profits could be payable. Time Apportionment relief can be used for capital gains, and is not linked to any particular product or investment, rather any asset.

If Offshore Investment bonds, or Offshore Insurance Bonds is the right solution then avoid the 1% regime, those who sell on the basis of fees being 1% per annum. All investments should be ‘clean’ (without commission) and there should be no exit fees, with all other fees being listed transparently. Only a fee-based adviser will be able to offer you these types of investment. Avoid ‘free’ investment advice at all costs.

Key issues / concerns 

By the very nature of the job, oil and gas staff are likely to move frequently and accrue substantial investments and pension benefits with differing employers and differing locations.

Oil and gas industry staff an attractive target for advisers including scammers. Unregulated salesman and offshore companies often refer to themselves confusingly as “ fully qualified independent financial advisers” when they are not.

BP and Shell have large pension schemes which are particularly targeted, often with carefully thought out reasons to transfer guaranteed pensions into QROPS or International SIPP often based outside of the regulatory protection of the UK. The most common areas recommended are Gibraltar and Malta.

Don’t listen to the hype that moving your pension offshore somehow saves you tax, it is the Double Tax Treaty between your residency at retirement and the jurisdiction of your pension that dictates the tax that is payable. Not the product!

In many jurisdictions, Offshore Investment bonds, or Offshore Insurance Bonds are not recognised by the local tax authorities and provide no tax savings at all, limited benefits, and limited assets available for investment. They should NEVER be used inside a QROPS or SIPP as the pension provides any tax benefit and not the bond. Where they do hold a wider range of assets they can often become classed as “Personalised bonds” which will lead to further advice being required upon return to UK to avoid penal tax rates.