Since the introduction of Qualifying Recognised Overseas Pensions Schemes (QROPS) in 6th April 2006, by UK’s Her Majesty’s Revenue and Customs (HMRC), many financial advisers, UK pensions members and schemes have looked for a QROPS guide to assist them with the mechanics of QROPS, how they work and maximising the benefits.
What is Required in a QROPS Guide?
Depending on what part you have to play in the QROPS transferring process would depend on the type of QROPS guide that you require.
As an adviser, UK pension member or scheme administrator you would need to know the positives and pitfalls of using QROPS for UK pension funds.
Different Types of QROPS Scheme
A QROPS is an overseas scheme that has been registered and approved with the UK HMRC to accept UK pension transfers to the fund.
The overseas pension scheme can be an established international life company or pensions trustee in a foreign country or it can be a bespoke provider established, since the QROPS rules were introduced in April 2006, with the specific intention to accept UK pension funds.
When advising their client as to which suitable QROPS their client should transfer their funds to, and adviser should be aware of the options that their client has in their new country of residence. For example, as in the UK, the foreign employer may provide the client with an employer’s scheme. If this scheme is run by an established life company in that particular country it could conceivably be registered as a QROPS already – in which case recommending a bespoke QROPS would be a more expensive option, in terms of charges. This is something a member must be aware of themselves.
Of course, costs and charges are not the only consideration for the adviser. Even if the member’s foreign employer’s scheme proves cost effective, other QROPS options maybe more tax efficient.
What, therefore, would an adviser look for in a QROPS guide?
What a financial adviser would look for in a QROPS guide would depend on how informed they are already on the subject and how in depth they are prepared to look into the advice process.
As well as being well versed in the QROPS legislation, ie what is and is not permitted when transferring a UK pension overseas to a QROPS, an adviser has to weigh up whether an overseas scheme provides more advantageous benefits than the existing UK scheme or schemes.
Knowledge of tax rules in one or more jurisdictions may be required, availability of scheme benefits and at what retirement age would also be considerations as well as overseas scheme investment options.
What would a QROPS provider look for in a QROPS guide?
A potential QROPS provider would look for very different help and guidance to an adviser.
For the administrators of a QROPS, which would be set up by an overseas life company, trustees or even individuals, they would need to know the procedure in first setting up a QROPS.
The HMRC, in the UK, needs to approve an overseas scheme and, in most cases, place the overseas scheme on the published list on its website when approved.
For HMRC to consider approval, the potential QROPS scheme has to apply to become a QROPS. The provider has to answer all the appropriate questions on the application form in order to gain approval.
However, being an approved QROPS is only the first step. The scheme has to follow UK pension rules, for releasing benefits and investing funds, for at least 5 years of the member’s overseas residency. These rules are available in the HMRC manuals, however a QROPS guide could simplify this.
It is crucial that the scheme follows these rules as its members could incur tax penalties if not adhered to.
Finally, what would UK pension member look for in a QROPS guide?
A UK member would have to be aware of the rules of QROPS and also the benefits and pitfalls of going into a QROPS.
An individual would be wise to speak to a QROPS specialist adviser before making a decision on what to do. A QROPS guide on all the points raised for the adviser and some of the providers procedures would need to be read by an individual to ensure peace of mind that the correct decision, to transfer overseas, is being made.