According to research conducted by a leading UK Self Invested Personal Pension (SIPP) provider, around £500 million of UK pension funds were transferred to QROPS (Qualifying Recognized Overseas Pension Schemes) in the two years immediately after 6th April 2006 (A-day) when QROPS were first introduced.
The research has stated that 7,300 UK to overseas pension transfers were completed in that 2 year period.
One of the reasons for the popularity of QROPS is the potential flexibility of the overseas scheme once the member has been a non-UK tax resident (and continues to be non-UK tax resident) for 5 complete UK tax years.
The main concern for UK SIPP providers, when trying to compete with QROPS, is the death benefits once a client is in Unsecured Pension (USP), which is pension income drawdown pre age 75, or in Alternatively Secured Pension (ASP), which is pension income drawdown post age 75.
For a client in a UK SIPP in USP, on death 35% tax is applied to any remaining fund paid to a beneficiary as a lump sum. On death in ASP, if a lump sum is paid to a beneficiary, a combined tax and unauthorised payment charge of 81% on the lump sum could occur.
For UK expat pension members living abroad and looking to draw on their UK benefits, a transfer to a QROPS, depending on the jurisdiction, could lead to a greater lump sum death benefit being paid to beneficiaries (after the 5 year reporting period) then if the client remained in a SIPP – as a QROPS potentially would not have the UK tax charges.
This is one aspect that has lead to increased popularity, for retirees abroad, of QROPS over SIPPs.
