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How Did QROPS Come About


UK Pension Changes 2006

UK pension scheme have traditionally been restricted by many limitations and regulations; partly to protect UK’s tax revenues, and partly to stop pensioners spending their money too early in retirement and later relying on the Government for income.

In 2006, HMRC embarked on an initiative to simplify pensions. Contained within this initiative was the announcement that British pensioners living overseas could move their pension fund into a QROPS – or Qualifying Recognised Overseas Pensions Scheme.

Part of the reason for this action came as a result of pressure from EU, to allow EU nationals to "passport" their pensions within the EEA, which the main member states had already agreed to. HMRC recognised that many Brits were working and retiring outside of the EU, and therefore there was need to establish a set of rules to permit these individuals to transfer their pensions overseas, while retaining control to prevent them from drawing their entire pension and spending it and to stop them avoiding paying tax.

While in simple terms a QROPS is any pension scheme based outside of the UK that meets these strict HMRC rules and is eligible to receive UK pension transfers, some QROPS jurisdictions provide many other financial and investment benefits to pensioners, such as improved investment freedom, a lump sum of up to 30% (the maximum in the UK is 25%), and the ability to pass on 100% of the fund to loved ones upon death.

It is worth noting that in a great many countries, their QROPS are more restrictive than HMRC are on UK pensions. However, a feature of QROPS is that HMRC allow UK pension scheme members to choose a QROPS from their preferred jurisdiction, and this does not need to be in the country where they live, or intend to live.

Obviously, the key is to choosing a QROPS in the jurisdiction that would provide the member with the greatest possible benefits.

During the Budget of 2015, the Chancellor placed specific emphasis on reforms to the UK pension system, allowing for more freedom in the drawdown of UK pension scheme benefits. However, as with many reforms, the precise implications for expats and their pensions are still not understood and are currently under consultation by the UK Government. Irrespective of the legislative changes, a QROPS will always be able to offer certain benefits that the UK pension scheme would not be able to deliver to retirees.

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