Transferring To QROPS – Primary Protection

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For the people that had built up funds, in excess of the UK Lifetime Allowance, prior to A-day (the 6th April 2006), major decisions had to made with their UK pension funds. For those with large funds looking to migrate, the introduction of QROPS (Qualifying Recognized Overseas Pension Schemes), on A-day also, would have a part to play in their decisions.
The UK Lifetime Allowance was introduced as a tax allowance that limits the amount of tax benefits an individual can accrue in a UK pension during their lifetime. This limit is tested at each ‘Benefit Crystallization Event’ (BCE). These BCE’s include taking retirement benefits, the paying out of death benefits and the transfer to an overseas pension (QROPS).

In order that people with UK pension funds, already in excess of the Lifetime Allowance before A-Day, were not penalized retrospectively the UK’s HMRC (Her Majesty’s Revenue and Customs) allowed them to ‘protect’ their funds. The most common form of protection used, for those in excess of the Lifetime Allowance at A-day, was Primary Protection.

Effectively, Primary Protection gives an individual their own Lifetime Allowance and allows their UK pension funds to increase at the same rate as the actual Lifetime Allowance. Therefore, an individual can legitimately have UK pension funds above the Lifetime Allowance.

Primary Protection is crucial to understand when a transfer of UK pension funds to a QROPS happens. As a transfer to an overseas scheme is a BCE and the Lifetime Allowance is therefore tested, there are circumstances – such as the individual has Primary Protection – where large funds can transfer without UK tax implications.