Qualifying Recognised Overseas Pensions Scheme (QROPS)
Do you have a UK pension? Do you live Offshore, outside of Britain? Or do you plan to leave the UK within the next 12 months?
If yes, then you need to consider the best way to unlock your benefits in retirement and optimise your pension. Transferring your pension pot into an approved overseas scheme could be a tax efficient method of providing for a financially secure future.
UK Pension Holders around the world are taking advantage of the QROPS legislation
At Gresham Street Partners (“GSP”) we take tax-efficient retirement planning seriously. In this guide we take you through a basic explanation of how the QROPS system works, whether it could be right for you, and how we can help.
“QROPS” stands for “Qualifying Recognised Overseas Pensions Scheme”. These schemes may be appropriate for anyone with a UK pension scheme – whether you are of retirement age or not – who is living overseas or planning to do so. The UK pension scheme member can transfer their pension across and take their pick of a wide range of jurisdictions, tax regimes and financial institutions offering a variety of services and benefits.
Deciding whether a QROPS pension transfer is right and which QROPS solution is best for you can be laborious, confusing and time consuming. GSP completes all the work from start to finish and removes the hassle and paperwork.
GSP is totally independent and is not tied to any one QROPS provider, therefore we can advise on all QROPS in all jurisdictions around the globe. Advising on all providers in the HMRC list gives you all the information you need in one place. We make our recommendation based upon our extensive experience with UK pension transfers, knowledge of all providers and schemes, on-going monitoring of new QROPS solutions and identifying our clients’ needs. We provide you with complete independent unbiased advice.
QROPS – The Basics
In April 2006, the UK government set about making the British pensions system simpler. As a result of this initiative, you have a limit on the amount of your own pension money you can access as a lump sum. UK pension scheme members are also forced to purchase an annuity or another income bearing product by the age of 75, which can dramatically reduce you, pension income and add huge restriction.
The introduction of QROPS, on the other hand, was a positive part of this pension shake- up. It meant that people who are planning to live overseas can choose to transfer their UK pension benefits into an overseas scheme that has been approved by Her Majesty’s Revenue and Customs (“HMRC”). Those with good advice can choose a scheme that is less restrictive in the way in which it treats withdrawals, investments and receive their pension benefits in a low tax environment.
In order to be approved by HMRC as a QROPS, the scheme must be both:
- Regulated as a pension scheme in its country of establishment; and
- Recognised for tax purposes in its host country.
The approved list can be read in full on the HMRC website (www.hmrc.gov.uk), and is subject to change as QROPS schemes are introduced to the market, or removed.
So how are these criteria applied in practice?
Regulated as a pension
To qualify for the HMRC approved list, the QROPS must be regulated as a pension scheme in the country where it is established. It should be noted that HMRC does not guarantee the proper regulation of approved overseas schemes. Indeed, the HMRC has issued a disclaimer stating that any members of QROPS schemes which are found to be defective and should not have been on the list runs the risk of penalties. GSP does the due diligence on all providers and you can be sure of the recommendation being the safest and most secure solution available.
However, the QROPS only has to be treated as a pension in its own country. It does not have to follow the tight controls that domestic UK pension scheme are tied to. So for example, if you choose a QROPS that lets you take larger lump sums then the UK scheme, you can transfer your UK pension into the QROPS and take advantage of this benefit. Or if you are not ready to take an annuity as you approach the age of 75 (as is compulsory within the UK pension system), you could ask our advisers to choose a QROPS that does not have this requirement.
Recognised as a pension for tax purposes in its host country
During the first 5 full tax years of your move abroad, HMRC are entitled to receive a report of any withdrawals or benefits made from the QROPS that originated from British funds. Accordingly, they only approve QROPS that are treated as pensions for tax purposes. However, it is perfectly proper (and indeed desirable) to seek out a tax regime that favours its pension schemes with a minimal tax rate.
Once you have lived outside of the UK for 5 full tax years, HMRC ceases to have a direct interest in your pension. However, if you return to the UK within this time, you could be liable to a tax charge. Speak to our advisers if you are planning on moving back to the UK. This requires careful planning in which we have extensive experience.
Please note that the QROPS provisions apply to private or occupational pensions – they are not available for the transfer of state pension benefits.
Any decision about your financial future is important and GSP can help you investigate all the options before you make a commitment.
Frequently Asked Questions
How are withdrawals from a QROPS taxed?
If you leave Britain and continue to draw monies from a UK scheme, HMRC is entitled to income tax on that sum. You can choose a QROPS in a low tax jurisdiction, although you must also consider the effect of the tax regime in your country of tax residence. At GSP, we can discuss many solutions with you, and make recommendations about the most tax efficient solution for your situation and plans.
I am not a UK citizen. Can I still use a QROPS?
QROPS schemes are not limited to UK citizens. It simply applies to anyone with a UK pension. So if you have spent time working in the UK and built up a UK pension pot, you could transfer it out of the UK into a QROPS without attracting income tax. US citizens and US residents may be prohibited from doing so by their own country’s rules – contact GSP for advice on your own circumstances.
Is a QROPS right for everyone?
QROPS transfers have revolutionised the way that British expatriates can live their lives overseas saving thousands in tax. However, the decision to make a transfer depends on whether you will be getting a better deal from a QROPS than your UK scheme currently offers. For most people, taking into account the favourable tax treatment of an overseas QROPS makes a transfer to a QROPS an attractive option. However, consider this carefully if you have a defined benefits scheme that guarantees you a higher than average income. Such schemes can be hard to beat, even taking the tax regimes into account. GSP will find out what your current scheme promises, to help you make the decision.
Who will get my benefits when I die?
This depends on the QROPS you choose. Some schemes are in jurisdictions that lawfully permit the remainder of your pension pot to be distributed to the beneficiaries you have named, without any payment of inheritance tax. This is something that GSP will discuss with you. IHT planning is one of our major services.
How long do I have to stay outside of the UK?
If you return to the UK within 5 full tax years of transferring your fund to a QROPS, the HMRC will revive their interest in your money. You could be subject to a tax charge. If you do want to return within this time, you may wish to consider an alternative type of investment. However, on return to the UK in the future, there is no compulsion to transfer your overseas scheme back to the UK as it can remain in the jurisdiction in which it was transferred. Speak to one of our advisers to discuss your situation.
Do I have to be retired?
You do not have to be retired to take advantage of the QROPS rules. Perhaps you are at an earlier stage in your career, and want to do a long placement overseas. You can transfer your UK pension fund into a QROPS, and benefit from the tax free provisions and investment flexibility of the QROPS rules.
When can I take my benefits?
That depends on the rules of the QROPS fund that you have chosen, and on the jurisdiction that hosts it. UK pension benefits cannot usually be taken before the age of 55. Other jurisdictions treat this issue differently. However loans from the fund can be arranged with compliant Trustees. For Australia, pension funds are locked up until the age of 60.
What if I have already taken benefits from my scheme?
Depending on the rules of your current scheme, you may not be permitted to make a transfer to a QROPS and in particular if your income is being taken from a Final Salary/Defined benefits Scheme. GSP can review the scheme rules, make enquiries on your behalf, and advise you on the rules of the intended QROPS scheme and its host jurisdiction.
How long will the transfer take?
There is no set timescale for the transfer of pension funds to QROPS. Much depends on the efficiency of the UK pension scheme you plan to withdraw from. Generally you should allow around 2 months for the process, from start to finish.
Is there a minimum amount you need for a QROPS?
There is no minimum set by HMRC. GSP will assist anyone regardless of the size of their fund. You may find that some of the best deals for charges are offered to those with pension funds worth £100,000 or more. However we have transferred as little as £20,000.
Is there a maximum amount for a transfer into a QROPS?
HMRC sees the transfer of your funds into a QROPS as a benefit crystallisation, for the purposes of tax. What this means is that if your fund value exceeds the lifetime allowance HMRC has set, you may face a tax charge. The lifetime allowance changes at each budget, and is about to be reduced to £1.5 Million as of April 2012. We at GSP are concerned this limit is going to be reduced to £1.3Mn from 2013. Ask GSP for further advice if you think this is relevant to you.
I have a number of UK pensions from various jobs. Can I transfer them all into one QROPS?
Depending on the nature of the QROPS scheme you choose, it is possible to consolidate a number of UK pensions into one overseas QROPS. Many individuals choose a QROPS solution for this benefit alone.
How much are the fees and charges?
The fees and charges depend on the QROPS Trust that is chosen. They can be as little as £750 per annum. The entry and setting-up fees can be deducted directly from the Transferred funds on receipt. GSP has access to the entire QROPS market, and as such can negotiate preferential fees for our clients. In most cases our own fees are covered by the QROPS provider. You can be sure that GSP will find the most suitable and cost effective solution available.
Where will my money go?
There are a number of potential jurisdictions available for QROPS. The HMRC list includes traditional investment jurisdictions with low tax regimes for non-residents in regions such as Jersey, Guernsey, and the Isle of Man. Our advisers will illustrate the pros and cons of each jurisdiction and produce a comparison of the options.
Is it risky to send money abroad?
Some investors are nervous about sending their monies overseas. That is why it is important to use a fully regulated HMRC approved Trustee Group who also holds FSA regulations in the UK along with regulations throughout Europe and the rest of the world. On the list of QROPS you will see the names of well known financial institutions. GSP can also organise a protection service (a Custodian) that will monitor the money to make sure the funds are as safe as possible.
Do I have to choose the same country as my retirement destination?
No. Your QROPS can be in any approved jurisdiction, as long as it is on the permitted list. In making your choice bear in mind that you will not only be subject to the tax regime of the country that hosts your QROPS, but also the place that you actually live. GSP will take you through the implications of this, and bear it in mind when selecting a QROPS.
I hold tangible assets and property in my pension fund. Can I transfer them to a QROPS in specie (without selling them first)?
This depends on how the assets are held in your UK fund, and whether the QROPS will permit a direct transfer. Some require assets to be liquidated so that you just transfer cash; others are more flexible.
Can I choose a QROPS that is not on the HMRC list?
The HMRC QROPS list is not an exhaustive list: some schemes have chosen not to be entered onto it. If a transfer to a non recognised scheme is made, aside from the actual tax bill you would eventually get, those who make such transfers could also be liable to a hefty fine from HMRC. All in all, this could mean the pension scheme member losing a large proportion of their pension fund. GSP does not advise this
How should I choose a QROPS?
The general criteria for a good QROPS are: well managed in an established, well regulated low tax jurisdiction.
However, GSP will take your specific requirements on board too. If you need to take a lump sum early, you need to choose a scheme that permits this. You may be used to personal involvement in your UK Self Invested Personal Pension (‘SIPPS’), in which case a QROPS scheme that also permits close involvement from investors could be ideal for you.
Summary of the benefits of QROPS
- No requirement to EVER purchase an annuity
- No requirement to pay UK tax charge upon death
- Tax efficiency
- Currency hedging (as you could receive your income in the currency of your resident country)
- Better inheritance provisions
- Far greater freedom of investment choices
- Global Onshore / Offshore funds available, not limited to UK only investments
- Take larger lump sums.
- Greater confidentiality
But bear in mind:
If you are going to return to the UK within 5 full tax years, a QROPS may not be appropriate for you. Speak to one of our advisers to discuss your plans.
If you have a final salary pension scheme, think carefully before giving up the security of a guaranteed income. GSP will provide you with a full pension review that outlines the pros and cons of transferring your UK pension to a QROPS.
If you have already started to take benefits, it could be too late to change. Speak to one of our QROPS advisers to discuss your situation.
Step 1 – Financial Assessment
The first step is to contact GSP. Further to a telephone conversation discussing your circumstances, an adviser will give you an assessment of your suitability for a QROPS transfer. You can complete a Letter of Authority which will enable GSP to do the legwork for you, to see whether your current scheme will permit a transfer and what that transfer value will be.
Make sure that you mention all of your plans for retirement. Remember, if you return to the UK to live within the first 5 full tax years from the date of the QROPS transfer, you could trigger a tax payment, so careful planning alongside your QROPS adviser is important. It is important not to set up a QROPS if you are not going to go abroad within 12 months of setting it up. Also, tell the adviser of any plans you have that might need a large lump sum. For example, you could be paying grandchildren’s school fees, or helping family members onto the property ladder.
Step 2 – Advice and choosing the way forward
Having surveyed the whole of the QROPS market for suitable options, GSP will offer you some advice about those that suit your own personal requirements.
GSP undertakes a strict due diligence process on all schemes in the HMRC list – so you can be assured that the recommended scheme is a solid long lasting institution.
Step 3 – Starting the transfer
Once you have decided on a QROPS scheme, GSP will provide you with a personal bespoke pension analysis for the monies to be moved from the UK scheme and invested in your new QROPS. Your adviser will keep you updated at every stage of the process.
Step 4 – Enjoy a secure retirement
Now that your pension is transferred, you can relax and enjoy your pension investments as you personally choose how best to invest and manage them.
Tell me more…
If you would like to discuss these options in confidence, contact GSP for a no obligation discussion in plain English.
Email GSP at firstname.lastname@example.org