x Abu Dhabi, UAEWednesday 26 July 2017

On Your Side: Misusing pension schemes can result in big fines

Plus questions about employer-covered airfare home and obtaining an end-of-service certificates answered by The National's consumer advocate.

I have been speaking to someone who has suggested that I move all the monies that I have in several pension schemes to something called a QROPS. He says I can access all the money this way, but it sounds too good to be true. What is your view? SM, Dubai

A QROPS is a Qualified Recognised Overseas Pension Scheme and is a plan that is largely designed for people with large UK pension schemes and who live outside the UK. These schemes have been much abused and have frequently been mis-sold as "pension-busting" schemes on the premise that the whole of the value of the fund can be taken as a cash sum. However, pension plans do not permit this and attempting to do so via an unauthorised scheme can result in a tax charge of 55 per cent of the value of the fund, plus interest and penalties. Her Majesty's Revenue & Customs (HMRC) can now enforce the collection of tax and penalties throughout Europe and is in discussions to do so further afield. Anyone who has taken this step via unauthorised plans will find that the HMRC levies considerable fines if they return to the UK or settle in Europe. Any adviser who suggests such a course of action should be avoided because it is clear they don't understand the implications of such actions, which could result in the loss of the majority of an individual's pension fund. QROPS permit a tax-free cash sum of 30 per cent of the value of the fund to be taken and offers a wider choice of beneficiaries compared with a UK fund. QROPS also allow legitimate avoidance of UK income and inheritance tax, but it is only suitable for people who have been, or plan to be, absent from the UK for five complete tax years and do not intend to return. They have their place in pension planning, albeit only for larger funds. In this case, QROPS is not suitable for SM because his total funds have a value of less than £100,000 (Dh589,739) and he plans to return to the UK in the next few years.


I work for a multinational company in Dubai Internet City, but have been hired by a subsidiary of the same firm in another country. Because I'm directly relocating to my new work location without routing through my home country, I have asked my employer to provide me with cash for the end-of-contract tickets, for which I'm eligible as per my work contract. My company in Dubai, however, says it will not provide this, either as cash or as the actual ticket, because the company's subsidiary in the new country is paying for a one-way ticket to the new location. I have read Labour Law articles 131 and 132 and also my work contract, all of which clearly state that the company pays for the ticket to my country of origin upon termination of my contract. In addition, it does not state that I actually have to travel, nor does it state that the employer does not need to pay if I transfer within the same company. But the HR department only wants to pay if I actually travel home, which I don't plan to do. If the employer does not pay this because a) I'm transferring within the same company; b) I'm not travelling to my country of origin; and c) the subsidiary pays for the ticket to the new location, wouldn't that mean that I am not leaving the company and thus would not have to quit? Or, in other words, that I would be entitled to the full end-of-service indemnity rather than just a third, or seven days per year in my case? PD, Dubai

The situation here is rather unusual because PD will be moving to an employer that is deemed to be a subsidiary of his current company, but will be based in a different region and, hence, a separate legal entity. He is on an unlimited contract and has resigned. This means that his employer has the legal right to reduce the amount of his end-of-service gratuity per UAE Labour Law. Article 131 of the law states: "Expenses for repatriation of an employee to his place of origin or any other place agreed upon by both parties shall be borne by the employer." However, it also goes on to say: "If the cause for termination of contract is attributed to the employee, his repatriation will be arranged at his own expense if he has the means to pay." Unless his contract states that the employer will fund repatriation regardless of the circumstances, then his current employer's actions are correct. It does, however, seem somewhat miserly to enforce these restrictions given the fact he is moving to another company within the same group.


My husband recently left a company because his contract had expired and was not renewed. He has been offered a job somewhere else, but the new company is asking for an end-of-service certificate. He has approached his old employer for this, but they have said they don't provide these and if he requires a reference, they will charge Dh300 for this. This seems expensive for something that I thought most companies provided as standard. What is the legal position? DF, Abu Dhabi

The company must provide this certificate by law. Article 125 of the UAE Labour Law states that an employer must provide an end-of-service certificate free of charge if the employee requests it. The certificate must include the service start date, the date of termination, total period of service, nature of work performed and the final salary amount, taking into account any other allowances that are payable.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Write to her at Keren@holbornassets.com with queries for this column or for advice on any other financial planning matter.