- What QROPS are
- How is qualifying status achieved
- When they were introduced
- QROPS benefits
- QROPS potential drawbacks
- Why they differ to UK schemes
- QROPS vs SIPPs
- Rules and regulations
- Rule changes
- HMRC QROPS list of providers
- In the event of QROPS being delisted
- Selecting the best provider
- What jurisdictions are available
- Selecting the best jurisdiction
- QROPS guide
- Foreign exchange
- How to check that a QROPS is a registered pension scheme
- Reporting obligations
- Are there better options
- What happens if you return to the UK
- Frequently asked questions
They are governed by different rules and regulations compared with UK registered pension schemes (RPS). The benefits and drawbacks offered as a result can make a QROPS pension transfer worthwhile. Although HMRC list qualifying schemes, they differ in many respects, so questions should be asked to ensure that you select the best QROPS jurisdiction and provider for your requirements
Following a change in government policy in April 2006, known as “A-day”, previously strict guidelines relating to pensions were loosened. QROPS use the new rules to offer overseas UK pension holders benefits over UK based schemes.
The pros and cons of a QROPS transfer depends on whether you hold a defined benefit (final salary) or defined contribution (money purchase) pension plan. The main QROPS advantages and disadvantages applying to both are as follows;
- Tax free lump sum of up to 30%
- Tax free growth
- Avoid inheritance and death taxes
- Potentially avoid paying a lifetime allowance (LTA) charge
- Consolidation and transparency
- Greater investment choice
- Currency choice
For a complete list of the benefits offered please view our previous article on the advantgages of a QROPS pension transfer
- Only benefits ex-patriates who hold UK pension schemes
- Loss of existing pension rights
- Costs may make it not economically viable
- Risk of scheme losing QROPS status
One further negative in relation to QROPS is that they have been associated with pension liberation. This, also known as pension busting, is when companies purport to being able to offer you access to your pensions prior to the normal minimum pension age which could have serious consequences.
For a complete list of the drawbacks please view our article on the potential downsides of a QROPS pension transfer
HMRC recognise that UK pension holders who are no longer based in Britain for tax purposes should not face the same restrictions as those who remain in the UK. This ties in with expatriates’ ability to manage all their other finances without British influence. Unlike other financial matters QROPS have benefitted from tax relief so HMRC has maintained certain control over how these pension schemes operate.
The rules governing QROPS provide a lot more flexibility and cover 3 key conditions;
Full details of QROPS regulations can be summarised as follows;
- No income withdrawal prior to the minimum retirement age (currently 55) except in limited circumstances. This is in line with UK rules
- Allow access to both residents and non-residents
- Either be regulated by a governing pension body or any appropriate underlying activities bodies, where applicable, if no pension body exists
These rules also stipulate the reporting requirements demanded of QROPS providers including information on the maximum timescale allowed for notifying HMRC of any payments or transfers, what is required for the 10 year rule, and what must be reported irrespective of timescale
UK pension rules have undergone a major reworking following the 2014 UK budget. This has resulted in the complete freedom to access your pension when you reach retirement age, in most circumstances, and a reduction in the death tax rate. The key to the advantages of QROPS is their potential ability to include favourable UK rule changes without being hindered by any disadvantages of unfavourable future amendments. As anticipated, QROPS rules have now been amended to offer full access to your pension as well, whilst it still remains possible to avoid paying any tax on death
The Pension Services Scheme (PSS), on behalf of HMRC, are tasked with compiling a newly updated list of approved QROPS providers twice a month. The list is self certified and should not be used as a recommendation or endorsement of a particular scheme’s suitability. To emphasise this point HMRC altered the wording so that it has now morphed into the list of Recognised Overseas Pension Schemes (ROPS) notifications. Therefore, a pension plan’s inclusion does not confirm that it complies with UK legislation. Instead, the list only provides an additional check for transferring pension schemes and holders to make when confirming an overseas pension’s qualifying status.
Failure to confirm that an overseas pension scheme is qualifying may leave you open to potential penalties.
Furthermore, not only is it possible for some non-qualifying schemes to appear on HMRC’s list but the opposite is also true. Additional checks with the scheme provider should therefore be carried out including the retrieval of the plan’s unique QROPS reference number and comparing the scheme’s rules versus the regulations set by HMRC.
Should it be found that providers or jurisdictions are not following the rules this can result in a huge cull of the number of qualifying schemes appearing. Any plan that is no longer deemed qualifying should not accept new pension transfers. For those who already hold a pension that is delisted the course of action is dependent upon your circumstances,
A full listing of QROPS providers is available here
Should your provider no longer be qualifying you may be able to both avoid the charge normally applied and even keep your pension within the scheme
There are literally thousands of registered providers on HMRC’s list so how do you select the correct one for yourself? You may wish to seek specialised advice in this area. It is probable that there may not be one best solution but instead there could be multiple accounts that are equally beneficial. It is important to demand the right answers covering areas including security, protection, flexibility and cost
If an overseas pension scheme complies with HMRC’s rules then it can be classed as qualifying. This has led to them becoming available in a diverse range of countries. The most commonly known jurisdictions are: Australia, Gibraltar, Guernsey, Ireland, Isle of Man, Jersey, Malta and New Zealand.
At the time of writing, there are over 3,700 listed QROPS providers covering 45 jurisdictions.
It is not a requirement to be domiciled in the country where your QROPS is based. It is very feasible that your overseas pension transfer could involve a place you have never even visited before
There are many considerations to decide upon before opting for the best QROPS location for your circumstances. These include;
- Security – Is the industry regulated?
- Protection – What compensation cover is available if any?
- What Double Taxation Agreements (DTA) exist if any?
- What tax rates are applicable?
Movements in currency exchange rates is a main risk of holding UK registered pensions abroad. Transferring pensions overseas can mitigate this. The extent that forex rates can effect a person’s pension investment portfolio can be drastic. This could potentially prevent someone from retiring in the country of their choice and being forced back to Britain even if they held apparently low risk underlying investments of cash and/or bonds
HMRC have recently changed their wording on the QROPS list to clarify that schemes which appear on their list may not be qualified. On the other hand, a QROPS may qualify but choose not to be included
For all international pension schemes that become QROPS one of their obligations is to notify HMRC within 30 days if they no longer meet all the conditions required of them. This will result in their loss of QROPS status and their removal from HMRC’s list. Furthermore, details will be made available to HMRC of each member who has ever transferred funds or assets into the scheme.
If an international pension scheme remains a QROPS then information on all reportable payments have to be declared for a minimum of 10 years (the 10 year rule). The term is extended if the member has been resident in the UK either within the tax year when the payment is made or any of the 5 preceding tax years