What Exactly is a QROPS?

Category: Pensions & QROPS

QROPS stands for Qualifying Recognised Overseas Pension Scheme.

It is a scheme into which you can transfer a UK pension. It is most suitable for someone living or working abroad and planning to draw their pension outside of the UK.

If you have contributed to an occupational or private UK pension, you could move the pension fund offshore to a QROPS. This could give you greater flexibility, the opportunity for growth and potential tax advantages.

Put simply, a QROPS is an alternative pension scheme based in a country outside the UK which HMRC has approved as eligible to receive transfers from UK pension funds.

Which schemes qualify?

There are strict criteria for QROPS schemes.

According to the Pensions Advisory Service, to qualify as a QROPS the scheme must meet the requirements set by UK tax law, and must satisfy criteria involving taxation, regulation and certain scheme conditions.

Before you consider making a transfer you should check that the scheme you want to transfer to is a QROPS. Otherwise your UK pension scheme may refuse to allow the transfer.

You can find a list of qualifying providers on the HMRC website.

QROPS rule changes

In the Autumn Statement published in November 2016, the government set out plans to ensure that QROPS tax rules are close to those which apply to UK pension schemes.

It also clarified the rules for people who did not plan to leave the UK for the long term, in order to prevent QROPS being used as a way of minimising their tax liabilities.

The changes mean that if you return to the UK you will be assessed for tax on 100 per cent of your income from a QROPS, rather than the current 90 per cent. This will bring the taxation rules in line with UK pensions. 

It’s also possible that some foreign schemes may in the future be removed from the qualifying list. That is why it is important to ensure that you seek advice before making your decision.

Why were QROPS schemes created?

The original legislation, prompted by EU directives, was designed to harmonise pensions and came into force in April 2006. It was intended to enable ex-pats to take their pension schemes with them when they moved abroad thereby simplifying their financial affairs.

There were changes in legislation by HMRC in 2012 which changed some of the conditions of QROPS in certain countries. However, QROPS schemes can still provide considerable tax saving opportunities and flexibility to ex-pats.

What are the benefits of transferring your pension?

For ex-pats living abroad who want to draw their pension outside the UK, there are a number of advantages:

  • Reduced tax potential
  • Choosing to take the pension in the currency of your choice
  • No obligation to purchase an annuity
  • Flexibility in the way you take income
  • Assets can be passed on to your heirs

What points do you need to consider in advance?

You can’t make a transfer to a QROPS if you have already bought an annuity. Nor can you transfer your UK state pension. Company or private pensions are the only schemes that can be transferred. Transferring your private pension to a QROPS will not affect your eligibility for the UK state pension.

The taxation of QROPS pension schemes will depend on the tax rules of the country where you are living and differs among jurisdictions.

Why you need a QROPS specialist

There are many different qualifying schemes and it can be confusing when you are trying to weigh up options.

An adviser can help you choose where you want to draw your pension. An important consideration is whether the country in which you plan to live or are living has consumer protection legislation which will protect you.

By taking advice from a specialist you can select the right scheme and plan how you will take your income in order to reduce your tax liability and make the most of the flexibility of a QROPS.

Contact bdhSterling today online or by phone on +44 1372 724 249 to discuss transferring your pension to a QROPS.