Qualified Recognized Overseas Pension Scheme
Quite simply, a QROPS is a pension plan that; "Qualifies" with HM Revenue and Customs (HMRC) rules, is officially "Recognised" by HMRC, is "Overseas", i.e. outside of the UK and is set up in trust as a legal "Pension Scheme", hence the acronym. A QROPS therefore, can accept a UK pension transfer just like any UK based scheme. The benefits of transferring your fund into a QROPS include increased tax efficiency, flexibility, total investment freedom and large growth opportunities – to name just a few.
For most people, their pension is probably their second most valuable asset after their family home, so benefits really make a big difference, and can dramatically improve life in retirement.
"QROPS is An Overseas Pension Scheme that can accept a UK pension transfer"
Download HMRC's most up to date list QROPS
Around 300,000 to 500,000 Britons leave the UK every year to start a new life overseas. The big demand for overseas pension benefits is the key reason behind the birth, development and refinement of QROPS and many thousands of expats have transferred their UK pension into a QROPS since the schemes were launched. Because of the potential benefits to be derived from transferring a UK pension abroad, this demand shows no sign of slowing.
The capacity for QROPS to simplify an individual's retirement has assisted as well. With a QROPS, it is much easier to switch from out-of-date arrangements, and consolidate a number of pension schemes under one roof.
Please note you cannot transfer a UK state pension or an annuity into a QROPS.
FAQs
Are all QROPS the same?
Definitely not! Differences include when you can access the tax-free lump sum, how much you can take as income, what tax is payable on that income, and the fees and charges. This is why it is imperative you take expert, independent advice – so you learn the best option for your unique needs and circumstances.
Who can transfer their pension into a QROPS?
If you have a UK pension it is likely that you can transfer your pension fund into a QROPS – providing you have not bought an annuity. However, as of the 5th April 2015, members of UK public sector or civil service schemes with defined benefits (final salary schemes) where blocked from transferring their benefits to QROPS. We believe that this restriction is still under review and if you are a member of such a scheme and believe QROPS is right for you then we would still recommend contacting your scheme trustees to see if they will approve a transfer to QROPS. Further considerations such as any pension benefits, the total amount in your pension, and where you are currently a resident all need to be considered in detail, meaning you must speak to a qualified financial advisor.
Can I make further contributions to my QROPS?
Yes, you can continue making regular or ad-hoc contributions to your QROPS if you are not already drawing an income from your scheme. In fact many people use their QROPS as a tax efficient “wrapper” to accumulate extra wealth while they are still working offshore in order to qualify for low tax on their income in retirement.
How do I get my income from a QROPS?
If you are a QROPS member, you can usually dictate to your scheme trustees when and where you would like to receive your pension income. The maximum amount of income you can take in any one year is calculated by your QROPS trustee annually. You can normally elect whether or not to draw this income and whether to take it on a monthly, quarterly, bi-annual or annual basis. You will complete a “benefit election’’ form, in which you will provide your QROPS trustees with your bank account details and the income payment frequency. You can then have your income remitted to a location of your choice on a frequency that is convenient for you.
Can I take 100% of my QROPS fund as a lump sum?
No, as your retirement fund needs to be able to provide income for you for the whole of your retirement, HMRC has set the maximum tax-free lump sum limit to 30%. Some jurisdictions do allow additional payments however. You should speak to an advisor for more details. In the UK this year, HMRC announced new pension’s liberation legislation. This new legislation now gives individuals to capability to draw down 100% of their UK pension pot. However, a member of a UK scheme who elected to draw down their entire pension would have a potential tax bill of up to 45% (2015-2016 tax year) which would for the majority of people destroy any benefit to be gained from drawing their entire pension down.
At present there is consultation underway that may open this up to QROPS. However, the authors of this site believe that it is unlikely HMRC will extend pension’s liberation to tax-efficient jurisdictions such as Gibraltar as this would effectively let people strip out their entire pension pot and just pay 2.5% tax on their income. It is unlikely that HMRC would be so generous as to permit this!
What happens if I go back to the UK in the future, can I still benefit from QROPS?
If you transfer your fund into a QROPS and return to the UK after being non-resident for tax purposes for five full tax years, there is no requirement to transfer your fund back to a UK pension scheme. In fact, there are significant advantages – such as only being taxed on 90% of your pension income. I am already drawing income from a UK SIPP – Can I move this to a QROPS to take advantage of the tax efficiencies and extra income?
Even if benefits have already been taken, most UK pension schemes can still be transferred into a QROPS, although this may be at the trustee’s discretion. If you are not a UK resident then this is usually adequate justification to request to transfer. In many ways QROPS and SIPPS share similar benefits, in that they allow you the same investment freedom but QROPS provide better benefits if you live outside of the UK.
If you have already purchased an annuity in the UK you will be unable to transfer, since you would have already spent your pension fund buying the annuity.
Getting proper advice
Pensions are complex and confusing, so it pays to take expert advice. To help with this, Global has teamed up with a number of leading QROPS trustees and UK based private banks and wealth managers. Please feel free to get in touch with us in order to help understand the most suitable QROPS based on your location and requirements. In addition, we will only ever transfer your fund into a QROPS which is 100% approved by HMRC.
What is the next step?
If you would like the benefit of a free initial consultation, qualified financial advisor will help you gather information about your UK pension and supply you with a full report on the QROPS solution which is right for you. The report will include expert financial advice regarding your current UK pension benefits, a critical yield analysis, a breakdown of the jurisdiction which best matches your needs, and your optimal QROPS solution.
Remember, there are many different QROPS on the market and there is not a “one size fits all” QROPS. Getting the correct and best advice is the first step to creating a more flexible and happy retirement.
What Are QROPS