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;

QROPS are UK pensions held abroad. They were designed to provide freedom to overseas based UK pension holders, though, due to funds having originally received UK tax relief, restrictions are imposed by HMRC. These restrictions have recently been updated and now closely mimic UK pension rules, namely;
 

  • 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…”

 
Pensions: Early retirement. Can QROPS allow you to retire before the state retirement age of 55?
 

The technicalities behind why it was, some may say still is, possible are due to;
 

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.
 

To be qualified, under statutory instrument (SI) 2006/206, a QROPS only had to ensure benefits were payable no earlier than the UK minimum pension age in certain circumstances only. This was when QROPS were not registered with a suitable regulated pension body. If they were, then it may have been deemed possible for it to legally pay benefits prior to 55.
HMRC continuously tries to ensure rules are fairly applied and will close loopholes and contest cases whenever necessary. It can also use retrospective measures if required. This is especially the case where technicalities may allow someone to bypass the spirit of the regulations.
 
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

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Early retirement – accessing your UK pension before 55 written by Liberty Wealth average rating 3.4/5 - 14 user ratings