What is a QROPS pension ?
A Qualifying Recognised Overseas Pension Scheme (QROPS) is an international pension scheme that is based in a jurisdiction other than the UK, but which is registered with Her Majesty’s Revenue and Customs (HMRC). QROPS pensions came into being after HMRC introduced a series of new pension rules on 6th April 2006 – known as A-Day.
A QROPS is one option available to expatriates as a way of transferring their UK pension benefits when they relocate to another country – when they retire for example. Other options such as a Self-Invested Personal Pension (SIPP) may be more appropriate in certain circumstances and it is important that you take impartial advice as to which route, if any, is suitable for you.
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UK pensions fall into two broad groups:
- (often known as ‘money purchase’ schemes), and
- (often referred to as a ‘Final Salary Schemes’)
Either of these can be transferred into a QROPS relatively easily, although under the UK Pension Schemes Act 2015, it is now a legal requirement that members of defined benefit schemes with “safeguarded benefits” worth in excess of £30,000 must receive advice from a ‘pension transfer specialist’ before the pension can be transferred. The specialist must be authorised and regulated by the Financial Conduct Authority (FCA) in the UK.
As Blacktower Financial Management (International) Limited is a European firm, we are regulated by the Gibraltar Financial Services Commission rather than the Financial Conduct Authority in the UK. In accordance with the above legislation, we work with trusted UK independent financial advisers, who are not linked to Blacktower, who can give you impartial advice on the transfer of your scheme benefits and we have no influence over the recommendations that they may make. You can therefore be sure that you will receive truly independent advice, tailored to your personal situation and financial circumstances and fully in line with the Conduct of Business Sourcebook (COBS) rules in the FCA Handbook.
Who is eligible for a QROPS?
If you’re a UK resident who has emigrated overseas – whether to work or retire – and have built up a pension fund within a private scheme, then you’re eligible for a QROPs pension.
Even if QROPS isn’t an established scheme in your country of residence, you will still be eligible for one; providing you with flexibility – especially when it comes to choosing a provider.
To confirm, to be eligible for a QROPS pension, you must meet the following criteria:
- Have a UK pension (not including a state pension) of any value
- Either live – or plan to live – overseas
- Don’t expect to return to the UK (or at least not be in the country for at least five years)
- Have not purchased an annuity
- Not have your pension scheme in drawdown (if you’ve chosen a final salary scheme)
The advantages of a QROPS
Qualifying Recognised Overseas Pension Schemes can offer certain benefits to deferred scheme members who wish to transfer their pensions abroad:
Some of the major advantages of a QROPS pension are that you can:
- Control the timing and amount of any income and Pension Commencement Lump Sum (PCLS) that you draw from your fund.
- Pass the value of your pension fund to your spouse and/or family on your death.
- Access up to 30% of the fund as a PCLS.
- Remove the effect of the UK Lifetime Allowance (LTA) which places a limit (currently £1.03m) on the total value of your pension fund.
- Protect your retirement income from currency fluctuations.
Drawbacks of a QROPS pension
It is important to point out that if you transfer your QROPS from a defined benefit scheme, there are potential disadvantages. You are:
- Giving up guaranteed retirement and death benefits
- Losing the protection afforded by the UK Pension Protection Fund.
- Taking on the running costs that are currently paid by your existing scheme.
- Exposed to investment risk that is currently borne by the existing scheme.
Most types of pension schemes can be transferred to a QROPS, with the exception of the following:
- Defined benefit schemes where pensions are already in payment
- Unfunded UK Government Pension Schemes
- State Pensions
If your Defined Benefit pension is worth less than £100,000 it is unlikely that a transfer to a QROPS will make economic sense.
QROPS rules and criteria
You are able to access your QROPS pension once you’ve reached the age of 55, and have been a non-UK resident for a minimum of five tax years. However, many people choose to take their pension when they’re older.
As part of QROPS rules, you can choose to take a lump sum of 30% – 5% higher than the typical payments of other pension schemes – and you can also draw a higher pension income compared to if you were in the UK. With a QROPS, you also won’t need to purchase an annuity.
When is it the right time to consider a QROPS pension?
Much will depend on your country of residence and other personal and financial circumstances.
What is certain is that professional QROPS advice such as that provided by the team at Blacktower can help you ensure that your planning takes full account of all your personal circumstances, objectives and importantly the country where you are tax resident. Alternatively, we can also advice you on SIPP pensions, QNUPS, defined benefit pensions, and defined contribution schemes.