QROPS stands for Qualified Recognised Overseas Pension Scheme. This is an international pension that has met the conditions stipulated by Her Majesty’s Revenue and Customs (HMRC) and so is eligible to receive assets from UK registered pension schemes. It has been judged to be of the same of equivalent standard as a UK pension. QROPS has become an increasingly inviting option for many people living overseas that are no longer contributing to existing schemes in the UK and wish to liberate those assets from restrictive final salary and defined contribution pensions.
At Mathstone we offer bespoke advice that aims to give you greater visibility and control over your investments. We work in a transparent manner and will always look to future-proof your investments.
Why might you consider using a QROPS?
The reasons for choosing a QROPS are extensive. Ultimately, using a QROPS increases investment control and flexibility, and can reduce the tax you pay on both your income and death. Mathstone can help you to maximise the benefits available to you whilst simultaneously simplifying what can be an incredibly complex process.
One of the major benefits of a QROPS is the opportunity it provides you to access a 30% tax-free lump sum from the age of 55. This is known as the Pension Commencement Lump Sum (PCLS). You are not required to take an annuity from your pension.
Currently, top earners in the UK can expect to pay up to 45% in income tax on their pension fund. Choosing to use a QROPS removes that income tax obligation after 5 years.
In addition, a QROPS rids you of the requirement to pay UK inheritance tax upon your death. It also gives you the ability to select the beneficiaries of the remainder of your pension. However, you may be obliged to pay some form of inheritance tax in your country of residence or that of the QROPS.
Looking to the future, you will not have to abide by any future changes to UK pension legislation.
QROPS are amongst the most flexible forms of pension scheme are available. Members of a QROPS can have their income paid anywhere in the world as and when they require it. There is no obligation to have your UK pension transferred to the new country in which you have chosen to live. In fact, we would recommend that you actually choose from only a small handful of countries. These include Malta, Gibraltar, the Isle of Man or Jersey. Malta, because of its excellent banking infrastructure and transparent tax system, and the others because of their close links to the UK. All have stable economies and internationally trusted regulators.
In line with this flexibility of location, a QROPS gives you greater choice over the currency that you wish to receive your funds in. Whereas a UK pension fund can only be paid out in pounds sterling, money can be withdrawn from a QROPS in multiple currencies, allowing you to make the most of the exchange rate.
Utilising a QROPS can provide you with greater oversight and control of your pension as the entire management becomes so much more transparent. Rather than spending your money on excessive UK pension manager fees, you can choose to invest those assets wherever you choose. It’s up to you how much risk you are willing to take with your funds.
What do you need to consider with a QROPS?
Choosing to pursue the option of a QROPS is a decision that requires serious consideration. For starters, UK pension legislation now requires anyone transferring a defined benefit scheme to have a suitability report produced by a professional regulated by the Financial Conduct Authority, in addition to their country of residence. The point of this is to ensure that you are fully aware of the potential risks of a QROPS as well as the benefits we’ve listed above. HMRC has an online list of QROPS that they have previously been approved.
The main eligibility criteria that you need to be aware of is that you must be 55 years old in order to access the 30% tax-free lump sum. You will also need to remember to continue reporting to HMRC for 10 years following the set up of the QROPS.
Although you will no longer be required to pay UK income tax on your pension, you will have to pay the income tax rate of either your country of residence or the country where your QROPS is based. Unless there is a double taxation agreement has been agreed between the two territories, there is a risk that be taxed twice. A double taxation agreement specifies which country has priority when taxing an individual and outlines any exemptions.
When transferring your assets to a QROPS, you may incur a 25% tax charge. This is the result of a change in UK legislation on the 9th March 2017. However, there are several wide-ranging exemptions to this rule:
If you live in the same country that your QROPS is based
If both you and the QROPS are based within the European Economic Area (EEA)
If you have not yet retired and instead are working overseas, and your employer is a participant in the scheme
If your circumstances change and you no longer fall under one of these categories within 5 years of the QROPS transfer taking place, you will then be required to pay the 25% tax charge.
Should you return to the UK within 10 years of the transfer being made, you will once again be subject to UK pension legislation.
How can Mathstone help you arrange a QROPS?
At Mathstone, we provide extensive guidance on pension transfers and can help you determine whether a QROPS is the right option for you moving forward. If it is, we’ll manage the process from start to finish. We want you to enjoy your pension freedom with complete peace of mind.
With the threat of a HMRC 55% tax penalty on your pension amount should you fail to abide by the rules, it is certainly worth seeking the advice of an expert.
If you are interested in discussing a QROPS in more detail, or are seeking independent financial advice on your investment choices, please do get in touch.
Please note that some of the information on this page is only applicable to UK residents.