As early as May 2008 there were around 1000 QROPS schemes in over 40 countries and territories recognized by HMRC as meeting the requirements for accepting UK pension rights.
But they don’t all necessarily meet the needs and requirements of someone considering an overseas transfer of their UK private pension rights.
HMRC recognizes ‘Overseas Pension Schemes’ whose scheme rules are closely aligned with UK pension regulations.
One of the main QROPS requirements is to restrict tax free lump sum payments by the QROPS provider to no more than 30% of the total pension value
- with the balance of the QROPS fund being used to provide an ‘income for life’
Financial security and investor protection
Selecting the most appropriate QROPS to receive a transfer of UK pension rights will usually begin by considering the standards of financial services regulation and investor protection within the QROPS jurisdiction. There are currently QROPS providers in a very diverse group of countries including:
Australia, Bangladesh, Bulgaria, Gibraltar, Hong Kong, India, Malta, New Zealand, Russia, Turkey and even the United States.
But choosing the right QROPS jurisdiction is not simply a question of choosing a country that meets the highest standards of investor protection and financial regulation.
Some QROPS jurisdictions may impose withholding tax on the QROPS pension income of residents (and even citizens) of some countries due to double taxation treaties.
Only when the most appropriate jurisdiction has been selected is it possible to start considering individual QROPS providers.
Once a person has been a non-resident of the UK for 5 complete tax years, their QROPS fund ceases to be subject to UK reporting requirements and falls fully under the jurisdiction of the country where the QROPS is established.
This means that on death, the residual QROPS fund would not be subject to UK Inheritance Tax or any other UK pensions based charges and could be distributed in accordance with the wishes of the scheme member.
The pensions regulations in some QROPS jurisdictions are often quite different to those of the UK meaning that after the five year qualifying period of UK non-residence, it may be possible to enjoy a range of other pension benefits on terms that are far more tax favourable than those applying to UK pension rights.
The process of planning and arranging the transfer of UK pension rights to a QROPS requires a level of detailed knowledge and experience that is probably only provided by a UK qualified Financial Planner.
In the UK this type of specialist pension planning can only be carried out by professionally qualified Financial Planners.
We believe that expats should enjoy the same level of skill, professionalism and pedigree as those living in the UK.
Eligible beneficiaries of many forms of UK pension arrangements are restricted to the immediate family of the pension fund holder and other verifiable financial dependents. No other person can benefit under UK law. With QROPS arrangements the pension fund holder is free to nominate any beneficiary.
QROPS do not require that the scheme member purchases an annuity and do not impose the reductions on income to those over 75 that can apply to UK pension rights.
Another important feature of QROPS is that they do not impose the minimum income draw-down requirements that are applied to the holders of certain UK pension arrangements once they reach the age of 75.
With a QROPS, those who have no need of income from their overseas pension arrangement can simply leave the money to grow and eventually pass the entire fund to their nominated beneficiaries, free of tax.
QROPS can also allow for a lump sum of up to 30% to be taken from the pension fund. The current maximum (tax free) lump sum that can be taken from UK based pension arrangements is 25%.
QROPS also permit investment in a much wider range of asset classes than are usually permitted with UK pension rights.
QROPS offer considerable benefits to those with UK pension rights.
QROPS provide the opportunity to mitigate or eliminate UK taxes, on income and ‘inheritance’ that would otherwise be levied on pension rights that remain in the UK . They also allow complete freedom in choosing beneficiaries as well as much broader and more flexible investment options after the five complete qualifying UK tax years of absence from the UK.
QROPS also offer the sometimes overlooked benefit of being able to diversify away from the British Pound.
Selecting the right QROPS arrangement is at least as important as the provision of ongoing investment management services to your retirement fund.
Whilst all HMRC approved QROPS are required to comply with certain UK regulations, there is some variation between the individual scheme rules.
Your own personal circumstances will also have a significant bearing on the choice of your overseas pension scheme. Your age, place of residence and nationality are just some of the factors that contribute to the selection of both the jurisdiction of your QROPS as well as the most suitable scheme within that jurisdiction.
With around a thousand QROPS schemes around the world and growing, QROPS planning is a very specialized area of financial planning for which UK qualified Financial Planners are best suited.
In many if not most cases, expats may be financially much better off when transferring their UK pension rights to an overseas scheme.
For some people, QROPS arrangements may very well be the factor that provides for a genuinely financially secure retirement.
But despite the rather compelling reasons for transferring UK pension rights overseas, this may not be the the best course of action for everyone.
Depending on the value and form of your UK pension rights, age, attitude to risk and even state of health, best advice in some cases may be to leave pension rights in the UK!
It is important that you are shown the benefits and the potential (or actual) drawbacks of moving your UK pension rights overseas before embarking on a QROPS transfer.
UK qualified Financial Planners will have the most relevant professional qualifications for giving guidance in this vital area of financial planning.
The benefits that can accrue to QROPS scheme members are considerable.
The reporting obligations imposed by HMRC on QROPS schemes have be established to prevent abuse.
Our update, clarifying these 2 interlinked aspects of QROPS can be found here
HMRC imposes reporting obligations on QROPS schemes for payments made by to scheme members.
- This will apply where the scheme member has been tax resident in the UK in any of the 5 preceding tax years
- Commonly know as the ‘Five year rule’
This does not mean that a free for all applies after the 5 year reporting period expires!
QROPS schemes are required to abide by HMRC QROPS regulations in perpetuity.
- This is a formal condition for retaining QROPS status
- Schemes that breach QROPS regulations run the risk of being removed from the HMRC list of recognized schemes
HMRC also imposes an additional reporting rule on QROPS schemes to ensure scheme compliance with ALL QROPS regulations.
- This 10 year reporting period runs from the date of transfer from the UK scheme to the QROPS
- Regardless of how many years the QROPS scheme member has been tax resident outside the UK
- Reporting scope extending to all actions and policies of QROPS schemes
It should be remembered that the regulations which apply to payments made to QROPS scheme members and the overall operation of the QROPS scheme, are no different in spirit to those that apply to UK pension schemes and their members.
But there are some distinct benefits for QROPS scheme members
- 30% pension commencement lump sum vs 25% for UK scheme members
- Legitimate tax savings
The underlying requirements and purpose of a QROPS are exactly the same as a UK pension.
- The provision of a retirement income, for life
- Hence the requirement for at least 70% of the fund to be used for the provision of a retirement income
The regulations imposed on QROPS schemes by HMRC are not unreasonable either.
- given the value of the UK tax relief that would have been attached to:
- pension contributions to and growth in the transferring UK pension scheme
The corresponding benefits that accrue to QROPS scheme members
- despite HMRC regulations
- are far more generous than those enjoyed by scheme members of UK pensions
- including expat members of UK pensions
If you should find a QROPS scheme that seems to good to be true, it probably is!
Individual QROPS schemes and jurisdictions do not enjoy any form of preferential treatment from HMRC.
Any suggestion that this is the case is probably an indication that you would be best served by looking elsewhere.
QROPS transfers relate exclusively to UK pensions, whose rules are determined by UK law.
We would therefore always recommend that you work with a UK qualified Financial Planner.
The Diploma in Financial Planning DipPFS is the benchmark qualification for giving advice in the UK.
We believe that you deserve the same pedigree of Financial Planner as your UK counterparts.
Qualifications and membership of UK Financial Planners can be verified here.