Qualifying Recognised Overseas Pension Scheme (QROPS)
Qualifying Recognised Overseas Pension Scheme (QROPS) is a type of pension that can receive transfers of existing British pension benefits.
QROPS was established back in 2016 as part of an overhaul of Britain’s pension framework. The idea was to simplify the process of transferring pensions to other countries. With QROPS individuals wishing to move to and retire in countries like France, Spain, and Portugal to take their pension funds with them.
Who are QROPS Suited for?
QROPS are a good choice for British citizens who have permanently left the UK and emigrated abroad, after having built up their pension fund. People born outside of the UK, but who have built up their pension benefits inside a UK-registered pension scheme, can also choose to move their pension offshore with a QROPS if they choose to retire outside of the UK.
A QROPS does not have to be set-up in the country you choose to retire in. Instead, you can move to another country and have your pension benefits paid into that country for the rest of your life (should they accept QROPS, that is).
Who is Eligible for QROPS?
- An individual between the ages of 18 and 75 years
- A British national living abroad or an individual who has worked in the UK previously and owns a UK corporate or personal pension plan.
- Any non-UK resident, regardless of nationality
- UK residents who plan to leave the UK*
*Applicants for QROPS who are planning to leave the UK must be able to prove they have either left the UK or plan to do so in the next 12 months. A property lease or a formal offer of employment is acceptable as proof.
QROPS Transfer: Considering a QROPS? Here’s What You Should Know
If you think a QROPS could be a good decision for you and your family, here are a few things to consider before making a QROPS transfer:
Seek Expert Financial Advice: you should always seek expert financial advice before making big financial decisions, such as transferring your pension benefits. If you are considering transferring to QROPS, speaking with a regulated pension adviser is something we highly recommend.
Tax Rules in Country of Residence: QROPS should not accept any unauthorised payments and should only be deemed as either a trust or a contract based offshore pension. This makes the tax residence of a QROPS owner critical, as some countries do not recognise trusts and therefore you can be taxed on the receipt of payments into your QROPS. Understanding the tax rules in your chosen country of residence prior to transferring your pension benefits to a QROPS could save you money.
Can I Transfer QROPS Back to the UK? If you decide to move back to the UK to retire, you may be able to transfer your QROPS back into a registered UK pension scheme. There may be tax implications that result, so it is important to speak with a independent financial adviser.
Browse the HMRC QROPS List: when transferring your pension benefits to a QROPS, you must ensure the overseas scheme you’re transferring to is a qualifying recognised overseas pension scheme. HMRC have a published list of qualifying recognised overseas pension schemes they have created to help you with this process.
HMRC QROPS: Is QROPS an Approved Scheme?
Unfortunately, QROPS is not approved by HMRC. However, a list of QROPS have agreed to have their names made available on the HMRC website and this is regularly updated.
The Benefits of QROPS
Qualified recognised overseas pension schemes offer a number of benefits. These include:
Lump Sum Benefits
Individuals with a QROPS can take a tax-free lump sum of 25% in the UK upon crystallisation of the pension. When you retire, QROPS legislation permits you to withdraw up to 25% of your QROPS free from UK tax.
Please note, it’s important to consider how a lump sum withdrawal is taxed in your country of residence. We recommend speaking with your financial adviser before making a decision.
Non-Compulsory Annuity Purchase
Expatriates who are looking to transfer their pension benefits into a QROPS are not obligated to purchase annuities. This allows them the flexibility to select funds and investments that best suit their risk tolerance.
Take Income in Your Chosen Currency
Retiring outside of the UK can expose your pension to unnecessary currency risk upon benefit withdrawal. QROPS removes this risk by letting you invest and withdraw your pension benefits in the currency of your choice. This removes the risk of your benefits losing value when changing currencies.
The Difference Between QROPS and QNUPS
It’s easy to confuse QROPS with QNUPS because they are overseas pension schemes that hold a lot in common. Here are some of the noteworthy differences to be aware of:
Pension Scheme Purpose: QNUPS are typically used for retirement and estate planning, whereas QROPS are used as a vehicle for transferring existing UK pension benefits overseas.
Eligibility: QNUPS are suitable for UK residents, while QROPS are more suitable for expats who are no longer living in the UK or planning to retire there.
Reporting to HMRC: QROPS must report yearly to HMRC, whereas this is not required of QNUPS.
Tax-Relief on Transfers: QROPS can receive UK tax-relief on pension benefit transfers, while QNUPS cannot.
Investment Options: QROPS cannot accept non-occupational investments, whereas QNUPS have the freedom to invest in just about anything, including residential property.
Pension Schemes Suitable for Transferring to QROPS
The following pension schemes can be transferred to a QROPS, subject to the pension rules in the chosen country of residence.
- Defined contribution pension schemes
- Defined benefit pension schemes
- SIPPs
- SSASs
- Personal pension schemes
- Money purchase schemes
- Civil Service and Armed Forces pension schemes
Please note: British State Pension benefits cannot be transferred abroad.
Pensions Not Eligible for Transfer to QROPS
Transferring your pension benefits to a QROPS is not always a viable or cost-effective option, depending on your circumstance. UK pension funds that are not eligible for QROPS include:
- Pensions previously purchased with annuity
- UK State pensions
- Any pension scheme that has already made a distribution from a ‘final salary scheme’.
It’s important to note that QROPS eligibility also depends on the legislation of the host country. For example, some countries won’t accept pension transfers from another country.
Seek Expert QROPS Advice
QROPS is unfortunately a very complicated area. However, there are some advantages to moving your pension fund to QROPS. Book a call if you’d like to find out more.
Discover more pension information and advice in our SSAS Video Hub.
