Choosing a QROPS or SIPPs may at first appear a difficult decision especially following amended UK pension rules which came into force on the 6th of April 2015. This is not helped when there is a lot of conflicting and occasionally inaccurate information available. A key point to bear in mind is that any generalised information may not apply to your circumstances so it is important to be fully informed. To help you ascertain which route will provide the best pension for you we will breakdown the differences.

The acronyms stand for Qualifying Recognised Overseas Pension Scheme (QROPS) and Self Invested Personal Pension (SIPP)
A Self Invested Personal Pension is just that, based in the UK. It is a personal financial product that follows UK pension rules. The self invested moniker should give you free reign to invest as and how you like within these rules. As per all UK based pensions you are therefore entitled to tax rebates on all contributions made that do not exceed either your taxable income or your personal annual allowance, investments can grow within a tax efficient environment, and any potentially tax liability is deferred until money is withdrawn
A QROPS is another form of UK pension. It is, in essence, a SIPP based outside the UK jurisdiction. It’s Qualification (Q) status is a result of it following specific HMRC rules whilst it becomes Recognised (R) when HMRC acknowledges the Overseas Pension Scheme (OPS) via the issuance of a unique QROPS reference number
Although a QROPS is a form of self invested personal pension located overseas this does not mean it is the same as a SIPP. The reasoning is that QROPS follow different rules compared to all other UK based pension schemes including SIPPs
QROPS versus SIPPs
All British pensions, based both inside the UK and abroad, must adhere to regulations set forth by Her Majesty’s Revenue and Customs (HMRC). These do, however, differ with more flexibility offered to QROPS schemes. In contrast, QROPS must also abide by the local jurisdictional pension rules where they are based thereby potentially impacting on the flexibility theoretically available

SIPPS vs QROPS comparison

Since the rules between UK pensions and QROPS differ so much the following table shows a potential comparison between the two. Please note, there can be wide variances between the regulations of individual jurisdictions. As a result, no one jurisdiction is right for everyone. Below is a generalised difference between UK SIPPS and QROPS. It must be noted that not all QROPS providers may offer the benefits highlighted below and, in the same manner, not all SIPPS providers will necessarily provide all the advantages potentially afforded to them by their rules.

Acronym stands for Self Invested Personal Pension Qualifying Recognised Overseas Pension Scheme
Introduction dates 1989 6th of April 2006
Rules UK pension rules QROPS pension rules & local pension regulations
Jurisdiction UK World excluding UK
Minimum retirement age 55 55
Tax free lump sum Up to 25% Up to 30%
Income & capital gains tax 0% 0%
Tax on withdrawals UK rate + rate where you reside 0% + rate where you reside
The specific rate of tax that you will be liable for will depend upon the country where you reside when funds are withdrawn from your pension. This is irrespective of whether you hold QROPS or SIPPs. For a SIPP any tax that is due in the UK may be reclaimed via an appropriate Double Taxation Agreement (DTA) with your residing country. If a DTA does not exist then you will be liable for tax in both countries. The DTA will stipulate the amount of UK tax that can be recoverable, which country you apply for relief, and the country you pay tax in. Please note, not all DTA agreements cover pension payments.
QROPS, like SIPPs, are also subject to tax on withdrawals in the jurisdiction where they are based and the country where you reside subject to any DTA agreements in place. In extreme situations this can result in no tax being due.
The way a QROPS benefits over a SIPP is that the best jurisdiction for you can be selected. This will allow tax to be minimised by either choosing a QROPS location which holds a DTA with your intended retirement destination or, if preferable, one that has a very low rate of tax. The latter is typically applied where your retirement destination holds no appropriate DTAs
Death tax due Up to 45% 0%
Avoid death tax Yes, keep pension invested Not liable for tax
Inheritance tax Usually no – death tax liable instead ** 0% **
UK beneficiaries entitled to tax rebate on death benefit No ** 25% – 81.88% **
On death, any remaining pension proceeds are potentially liable for death duties and inheritance tax (IHT) in the jurisdiction where it is based. Furthermore, IHT may also be due both in the country where the deceased was resident and for any beneficiaries as well. For QROPS, the jurisdictional tax rate for both IHT & death taxes is 0% in a lot of instances. Proceeds will then be paid out to the beneficiaries. For SIPPs, any remaining proceeds will not go into the deceased’s estate for IHT purposes in most cases.
In relation to a UK beneficiary of QROPS’ proceeds inheritance tax would potentially be due if the amount received exceeded the person’s current IHT threshold (£325,000). This tax could be nullified by using a trust therefore it is very feasible for no tax to be paid irrespective of the size of pension.
Since this money is freely available to be used how the beneficiary wishes they could use it to enhance their existing pensions. Based on current rules that means a minimum tax rebate of 25% for lower rate tax payers up to 81.8% for additional rate tax payers (each £80 & £55 respectively would be topped up to £100).
This is subject to the deceased having been a non UK tax resident for 5 full tax years and annual pension contributions not exceeding either the individual’s annual gross income or their personal annual allowance, whichever is smaller.
Technically, the same could apply to UK pensions under the assumption that you know you will die before 75 and that the pension rules do not cancel this anomaly
Returning to the UK;
Rules UK pension rules UK pension rules
Tax free lump sum 25% 25%
Remaining income taxed Taxed on 100% of withdrawals Taxed on 90% of withdrawals
Additional tax due Yes – based on temporary non-residence rules ***
If you return to the UK then any income withdrawn from your pension in the previous 5 years (or 5 full tax years if you left before the 6th of April 2013) is liable for tax. All income taken within that period will taxed accordingly as if the money was withdrawn from a uk pension on day 1 of your return. There is, however, an exclusion for anyone who withdrew £100,000 or less within the fully adjudged time period.
Any tax already paid may potentially be offset dependent upon any relevant double taxation agreements (DTA) in place
Double Taxation Agreements (DTAs) 137 **** Dependent upon jurisdiction
Pension income may be excluded from certain treaties. Also, a lot of the most sought after retirement destinations are conspicuous by their absence including Ecudor, Costa Rica, and the UAE. This could result in income tax being paid twice, both at the UK and your retirement destination’s rates.
A QROPS, by comparison, will either enable you to find a location that holds an appropriate DTA with your retirement destination to allow income to be paid in full (gross) or, alternatively, there is the option of selecting a low tax rate jurisdiction to enable the amount of tax paid to be minimised
Lifetime allowance tax charge Assessed at each benefit crystallisation event (BCE) Assessed at point of transfer only
Potential for LTA to be reassessed Yes No
Tax charge for exceeding LTA 55% or an additional 25% tax on regular payments 25%
Fund flexibility Access to 100% of pension (excludes defined benefit schemes) Access to 100% of pension
Accept final salary pension schemes Yes excluding unfunded schemes
Defined benefit pensions, of which final salary plans are one variety, must be signed off by UK financial adviser who is suitably qualified. Liberty Wealth are able to provide this service to our clients
Accept defined contribution transfers Yes Yes
Certain pensions cannot be transferred in either case including those that have already been used to purchase an annuity, final salary schemes currently paying benefits and the UK state pension
Costs Dependent upon provider
Which is best Depends on your circumstances

* UK rules will continue to apply up to 5 full tax years from you no longer being a UK resident for tax purposes

The charges of using QROPS have dropped significantly following years of competition. Even still they tend to be higher than for the equivalent SIPP.
Please note, both QROPS and SIPPs are only an administrator who ensure pension rules are adhered to and that the relevant reporting to HMRC, or other relevant authorities, occurs. They do not, in themselves, allow you to trade or transfer any investment. For this, you will require a form of trading platform which will allow you to perform these activities and this may be supplied by the same provider as your SIPP/QROPS. Depending upon the provider the investment choice may be restricted and costs will vary. There are numerous potential charges that exist including setup, annual management and dealing fees. Every investable SIPP and QROPS have these charges, even if they are zero, so it is important to establish what they are. Due to the opaque nature of some providers fees it can make comparison time consuming and difficult. The most important factor when considering charges is their value. A QROPS may cost more than a SIPP but if its advantages are sufficient then it will be more valuable. The same applies for investments and comparisons between different SIPPs
If you wish to receive professional advice on transferring a UK pension there will be a cost involved. Therefore, if you are aiming to get the lowest cost possible by not taking any advice then you should contact the providers directly thereby cutting out the middleman. You have to be aware that this will limit your options since some providers will not accept clients who have not received appropriate financial advice.
For everyone else, you should ensure that you speak to an independent financial advisor who has experience with QROPS/SIPPS and who clearly explains all the costs involved, the benefits and the drawbacks. Importantly, you should receive tailored information based upon your circumstances following an in depth discussion about your goals, expectations, and priorities

For further information we have a selection of free downloadable guides and news articles that may be of interest.

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QROPS vs SIPPs following pension rule changes written by Liberty Wealth average rating 4.3/5 - 24 user ratings