Would you like a way to retire early? Have you even considered the possibility of withdrawing money out of your pension before the state rules permit? For those based overseas, you may have heard that one benefit of transferring your pension abroad into a QROPS is the ability to do exactly this.
To explain, we will look at the following;
- Why it should not be possible
- Why it was technically possible
- Reasons against accessing your pension early
- A limit is imposed on the maximum tax free pension commencement lump sum (PCLS) allowed
- The UK pension minimum retirement age is applicable
- All QROPS providers are to be regulated whenever possible
Further to this, the HMRC QROPS list has undergone a rewording. It has dropped the Qualifying tag and is now known as the HMRC ROPS list instead. It is on this list that the clearest signal regarding HMRC’s viewpoint on accessing your pension early can be found. It states…
“Accessing benefits (directly or indirectly) before age 55 will result in a liability to UK tax charges…”
- certain QROPS jurisdictions allowing access to pension funds prior to age 55
- there is deemed no reporting requirement after 10 years
- the recognised overseas pension scheme (ROPS) conditions prior to the latest amendments
All of this paves the way for a retirement fund to be accessed early.
Firstly, if there are no reporting requirements on a pension fund then some may argue that the pension is not subject to any HMRC QROPS rules and, instead, relies solely on the jurisdiction’s pension rules where it is based. Alternatively, they may state that any QROPS are subject to the rules when the transfer occurred rather than the present rules.
It was apparent prior to the QROPS rule changes that HMRC did not intend on people accessing their pensions early, as clarified under the latest regulations. Most people will recognise the changes for what they are and will follow the rules accordingly. For everyone else, who still hope to access their pensions early, the technicalities mentioned above could fail due to one point – your QROPS provider may issue a report to HMRC after 10 years. This could be due to a loss of QROPS status for the scheme (even if it’s only temporarily) or if HMRC decide to do a random spot check. Failure to adhere to the rules could result in you being liable for a unauthorised payment tax charge.
Many advantages still exist for QROPS over UK based schemes. Accessing your pension early is not one of them