There is a lot of talk about QROPS, but what is a QROPS exactly.
Anyone with a UK pension scheme that meets the criteria who lives overseas or is planning to leave the UK can transfer their UK pension plans into a QROPS (Qualifying Recognised Overseas Pensions Scheme).
The financial benefits following a transfer of UK pension rights to a QROPS can be huge if planned correctly, including:
- Greater benefit flexibility
- Potential for an immediate lump sum
- Ability to leave your pension fund to your loved ones free from UK tax
- Future financial security of your pension
- Wider investment choice
- Improving investment growth
UK pensions have traditionally been tied up in many layers of restrictions and regulations. In part this is to protect UK tax revenues by taxing income from annuities as well as any residual value on death at 55%. And to stop pensioners spending all their money in the early years of retirement and then relying on the State!
However, those of with UK pensions living overseas or about to move to a new life abroad, nearly all of these restrictions can be avoided. Since April 2006 it has been possible, and for the majority highly beneficial, for those with UK pension entitlements (excepting annuities in payment) to move their pension benefits to a QROPS.
In straightforward terms a QROPS is a pension scheme set up outside the UK that:
- Is regulated as a pension scheme in the country in which it is established, and
- Does not allow benefits to be paid before the age of 55 years old (this is known as the pension age test)
- Requires that at least 70% of amount transferred is used to provide an income for life, and
- Is recognised for tax purposes in the country that the QROPS is established, and
- Is in a country where pension income is taxed in the same way for residents and non-residents
- Agrees to report all transactions out of the scheme to the HMRC for all UK pension transfer members for 10 years after the member joins
- Follows UK investment guidelines in respect of allowable investments (no residential property etc)
A scheme must apply to become a QROPS with the HMRC in the UK. Because a scheme applies does not mean that it is automatically a QROPS and most UK schemes will check the Trust Deed’s of overseas QROPS to ensure that they meet the requirements as outlined above.