A type of overseas pension scheme
that mimics a UK pension scheme, but provides often
QROPS are just like UK pension schemes
There is a lot of talk about QROPS, but what is a QROPS exactly. And what do they do.
In straightforward terms a QROPS is a pension scheme set up outside the UK that mimics a UK pension scheme, because it follows most of the same rules set in the UK. And because a QROPS mimics a UK pension scheme the UK authorities will allow people to transfer their pensions into them, provided that the QROPS agrees to some conditions. So the important characteristics and conditions of a QROPS are:
- 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 and is just like the UK rules)
- 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 (to stop people setting up discriminatory schemes)
- 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)
Schemes must work to retain their QROPS status
A scheme must apply to become a QROPS with the HMRC in the UK. The HMRC will review the documentation of the scheme to ensure that it is appropriate and meets the conditions and criteria as set out above. These conditions and criteria can change over time, and if a scheme wants to remain a QROPS it will need to ensure that it can change to meet the new criteria.
The HMRC keeps a register of all QROPS, but because schemes can change their rules, countries can change their legislation and the QROPS rules themselves can change, the HMRC will not warrant that any scheme on their list is actually a QROPS. For this reason before transferring a pension to an overseas scheme most UK pension providers will do an analysis of the QROPS to understand if it is meeting the conditions for being a QROPS.
QROPS can be better than UK schemes
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.
The reasons for using a QROPS is that they can often provide benefits that are not available through UK schemes, such as:
- The ability to leave your pension fund to your loved ones free from UK tax
- Investments denominated in the currency of your choice, like New Zealand dollars, Australian dollars, sterling and many more
- Payments out of the scheme that are free of tax
- Being able to manage your scheme in the same time zone as you
- and many more…
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