QROPS stands for Qualifying Recognised Overseas Pension Scheme. It is a pension fund based abroad (outside of the UK) that is approved by HMRC to receive a transfer of funds from your UK pension.
Why do I need a QROPS?
There are many reasons why you might want to consider transferring your UK pension elsewhere and we always recommend asking for professional advice on the matter before making any decisions. However, if you are moving abroad, an overseas pension can often provide more flexibility for your circumstances than in the UK, where pension regulations are restrictive.
How do I know which QROPS is right for me?
There are approximately 1,800 overseas pension schemes on the HMRC website with many more approved schemes that do not appear on the list. Not all of these will be suitable for you, so it’s important to consider the following when choosing the right QROPS.
- Your plans for retirement – when and where would you like to have access to your pension funds?
- What type of benefits (ie levels of income or lumps sum) would you like to receive in retirement?
- Do you have beneficiaries (such as a spouse, children or family member) to consider?
- What level of risk are you prepared to take with your investments?
- Are there any exchange rate implications upon transfer or in retirement?
- What are the tax implications in the country or jurisdiction that you are living in?
What are the limitations when transferring to a QROPS?
Every pension scheme will have its own terms and conditions.
However, there are still certain regulations in the UK to consider. For instance, if you are UK tax resident or have been a non-UK tax resident for less than five complete UK tax years, the benefits that you receive from your overseas scheme must not exceed the benefits you could have received from a UK pension.
What are the penalties for improper management of a QROPS?
Any offshore or overseas pension registered as a QROPS must comply with the legislation set by HMRC. Trustees or administrators of a QROPS have an obligation to ensure payments made are within the UK limits and are reported to HMRC for 10 years from the date of transfer in.
It’s important to note the following:
- There would be a tax charge payable by a UK pension scheme holder on the excess of any UK pension funds transferred overseas above the UK lifetime allowance
- If the pension holder accesses the pension benefits or funds before the age of 55, an unauthorised payments charge will apply
- The QROPS must report on any transfer made to another scheme within the required period
- Any unauthorised payment, made by the QROPS, is charged at 40% of the fund’s value, with an additional surcharge of 15% payable by the pension holder
- An overseas pension that continuously fails to follow the QROPS rules could have its QROPS status removed and be banned from receiving UK pension transfers
To ensure you follow the correct procedures and adhere to the UK’s strict rules and regulations regarding a transfer to a QROPS, we recommend you get expert advice. To get in touch with one of our qualified UK pensions experts, click here.