If you are planning to retire abroad, you will no doubt be in the process of making the necessary financial arrangements for any pensions transfers, and considering the various options presented to you in the process.
As long as HMRC approves a particular scheme, you will be able to protect your hard-earned retirement funds from unnecessary taxation from the UK government. A QROPS (Qualifying Recognised Overseas Pension Scheme) pension fund will remove many of your UK tax liabilities, provide more investment flexibility, and mean that you can manage your money in the local currency. These are all benefits that should leave you with more money in your pocket.
However, not everyone and not all pension funds are eligible for this type of overseas pension transfer. There are complex rules surrounding which pension funds are eligible to be treated as QROPS, which is why it is important to seek advice from a pensions specialist such as bdhSterling who understand the QROPS market and can help you make informed decisions about pensions transfers.
A QROPS is a pension scheme established outside of the UK that is deemed to be broadly similar – meeting certain criteria set out in UK legislation – to a UK registered pension scheme. Approved schemes are found on the ROPS notification list. If you transfer to an overseas pension scheme that is not approved, you will have to pay at least 40% tax on the value of the transfer that you make.
Limitations of QROPS in Australia
Since the 6th April 2015, an amendment to UK pension law was made that reduced the number of Australian funds on the ROPS list to one (though this number has subsequently risen again to above 400). The original reduction in available Australian QROPS was because, under QROPS legislation, UK pension transfers to overseas schemes are not allowed to a scheme that permits members to draw their funds before they have reached the age of 55, unless the member is taking early retirement due to ill-health. Since Australiansuperannuation scheme legislation permits early withdrawals in certain circumstances (such as severe financial hardship and compassionate grounds), Australian superannuation legislation was not therefore, compatible with UK pension legislation – and, as a result, did not meet the criteria to become a QROPS. However, many of the 400 plus Australian QROPS that now appear on the QROPS list are “Self-Managed Superfunds” (SMSFs), set up for members already over the age of 55 – therefore meeting the QROPS criteria as benefits cannot be paid before the member’s 55th birthday as the member has already reached this age.
Which Pension Funds Can I Not Transfer into a QROPS?
There are a number of UK pension funds that are not eligible for transfer.
You cannot transfer your UK State Pension into a QROPS. Nor can you make a pension transfer of any scheme which has previously been used to purchase an annuity, or if you are already drawing your pension from a final salary guaranteed payment. You are also not allowed to transfer any schemes run by the NHS, the teachers’ pension scheme, the civil service, armed forces, police or firefighters.
Financial Caps – Australia
Pensions transfers into an Australian QROPS are also affected if you have a pension balance in excess of the Non-Concessional Contribution Cap (NCCC) for superannuation. The annual cap for such contributions is (AUD) $100,000 as from the 1st July 2017. If you are under the age of 65, it is possible to invoke the “bring forward rule”, and use up to three years’ worth of non-concessional contributions at one time, making the limit (AUD) $300,000. However, you would have to wait a further 2 complete Australian tax years until you can make a further transfer in. The lifetime contribution limit is (AUD) $1.6 million.
Seeking the Best QROPS Advice
At bdhSterling, we have many years of experience in helping people make pension transfers to overseas schemes. We are able to advise you on the best strategy for a QROPS transfer, including when to do it, how you will be affected by taxation issues, and what to do with your funds if they can’t be immediately transferred.
Please get in touch to today to speak with one of our expert QROPS advisers.