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QROPS Overview, Explanation and Advice

A QROPS is an overseas pension scheme which can give additional freedom to expats still holding pension funds in the UK

Last updated 6 October 2021 at 11:40

This detailed overview of QROPS is designed to provide an independent overview of QROPS and overseas pension transfers.

A Qualifying Recognised Overseas Pension Schemes, or QROPS, is an overseas pension scheme that meets certain requirements set by HM Revenue and Customs (HMRC).

A QROPS can receive the transfer of UK Pension Benefits in the vast majority of privately administered personal or corporate pension schemes, without incurring an unauthorised payment and scheme sanction charge.

To qualify, a QROPS must behave as if it were a UK pension for investors who have been UK resident in the previous five tax years. If you return to the UK, the QROPS will become subject to UK pension regulations.

However, for investors who have been non-resident in the UK for at least five tax years, the QROPS becomes subject to the laws of the overseas jurisdiction in which it is based. Consequently, you can take income with no limits and there will be no deduction of tax at source (although taxation will apply in accordance with your current country of residence).

Is a QROPS right for you?

When it’s broken down, British Expats have two choices when it comes to managing existing UK pension schemes:

  • Option 1: Leave the UK and retain your workplace or private pension with a UK provider
  • Option 2: Transfer the UK pension funds into a QROPS

There are other alternatives and variants of course, but generally the options come back to these two.

QROPS can provide an opportunity for people to unlock significant benefits from their pension, including enabling them to avoid tax in the UK by transferring their pension to a QROPS.

Defined benefit pension schemes and QROPS

If you have a defined benefit pension scheme, you may also wish to read our detailed overview of defined benefit schemes, which also looks at potential reasons why a QROPS transfer may or may not be a suitable option for you.

Who is eligible for a QROPS?

Typical scenarios are where a UK resident leaves the UK to emigrate (or to retire abroad) having built up a pension fund within a privately administered scheme or when a person born abroad who has spent some time working in the UK and built up benefits in a UK Pension Scheme decides to return to their home country with an expectation of then retiring there.

The QROPS does not have to be established in the new country of residence, thus providing greater flexibility and stability, along with a wider choice of scheme provider. To become a QROPS, a pension scheme must apply to and be approved by HMRC. A list of QROPS that have consented to have their names published is available on the HMRC website and is regularly updated.

Overseas transfer charges

On 8th March 2017, the UK government introduced a new overseas transfer charge which could affect many QROPS transfers which were requested on or after 9th March 2017.

To find out more, please read our detailed article covering overseas transfer charges >

Benefits of a QROPS

For those considering using a QROPS to unlock a pension scheme, you can look forward to enjoying a number of benefits.

Tax benefits of a QROPS

Income from UK pension arrangements is subject to income tax. It is collected as a withholding tax at 20%, and this tax is applied to everyone in receipt of UK pension income whether or not they live in the UK and with no exemption for foreign nationals.

No maximum Lifetime Allowance

Any growth in value of the QROPS above the value of the UK Lifetime Allowance (£1,073,100 2021/2022 to 2025/26) paid as a pension, will escape the 25% Lifetime Allowance excess tax charge. This charge would otherwise apply to any pension paid from a UK registered pension scheme to persons who are UK resident or non-resident for less than five years where the value of the pension exceeds the Lifetime Allowance.

Inheritance and estate planning

As a QROPS is not under UK jurisdiction or tax laws, transferring your funds to a QROPS provides you with protection from UK inheritance tax – although your beneficiaries may be subject to local inheritance tax rules.

Overseas pension schemes will usually ensure that residual pension funds pass to the intended beneficiaries much easier and quicker than would be the case in the UK.

Dealing with the question of what happens on death for expats with a QROPS is more straightforward.

The nature of the scheme means that the pension fund is outside of the pension holder’s estate for the purposes of UK inheritance tax (IHT), so providing the beneficiaries receiving any unused funds are not tax resident in Britain, they get to keep the money. IHT rules may apply in the country where they are tax resident of course.

Currency options

QROPS and other overseas pension schemes allow for the payment of pensions in currencies other than Sterling, providing a valuable safeguard for expats.

Freedom of choice with a QROPS

As an expat you can move your pension funds into a QROPS ‘in specie’, which means you can use the same funds, but under the QROPS umbrella for tax shelter. Alternatively, you could invest in almost whatever mutual funds, shares, ETFs, gold funds, silver funds or bond funds that you choose. 

Protect your investments

Depending on the jurisdiction chosen for the Overseas Pension Scheme, there is the potential for greater protection against creditors and other claimants than is typically available.

Accessing your funds

With a QROPS you will be able to access to your pension at 55 and also be able to receive an increased lump sum of 30% rather than the 25% if you have been offshore for 5 years.

If you desired, a QROPS also allows you to draw a higher pension income than in the UK.

A QROPS also enables you to get all your pensions transferred to the same place, where you can access them online whenever you want, giving you greater visibility.

Annuities

With a QROPS there is no need to buy an annuity at any time.

QROPS Qualifying Criteria

There are a number of criteria which you must satisfy to be eligible for a QROPS, including:

  • You have a UK pensions (excluding state pensions) of any value
  • You are planning to, or currently, live overseas
  • You are not planning to return to the UK or you will at least be out of the UK for a minimum of 5 years
  • You have not already purchased an annuity
  • If yours is a final salary scheme, then the scheme should not be already in drawdown
  • Investment allocation

UK pension funds often have a bias towards investment in UK assets. QROPS provide the scope for diversifying, as well as the option for more personalised investment management.

Request a free introduction to a pension specialist

If you are considering transferring pension funds into a QROPS, or have some questions about QROPS which you don't feel have been answered, request a free introduction to a trusted independent financial advisor through Experts for Expats.

As part of our introductory service, the advisor will arrange a free consultation which is designed to answer any questions and provide impartial assistance which will enable you to:

  • Identify whether a QROPS transfer is suitable for you
  • Clarify any costs, commissions or fees related to a QROPS transfer which you are unsure about
  • Avoid the potential pitfalls of a QROPS transfer
  • Get a second opinion about any advice you may have received - especially if you have been contacted out of the blue by an advisor extolling the benefits of QROPS
  • Have peace of mind about any decisions you make

At no time will you be pressured into making any decision, neither will you be under any obligation to proceed with any advice.

Testimonials from people who have used this pension advisor introduction service

Contact was fast. Initial consultation was informative and helpful. The consultant was very personable, listened to my questions and was thoughtful and thorough in his responses. In a forum such as this, the consultant must convince the client that they are trustworthy and knowledgeable; The consultant I spoke with did that!

Lucy P. United States, Pensions

The speed of response, the overall professionalism of the consultant and the ease with which business was conducted.

Philip H. Georgia, Pensions

I was very impressed with the speed and quality of the communication and the amount of information I got in a 30-min consultation. There was no undue pressure on me to buy anything, and it was nice to be able to talk to someone who understood both the UK and US markets. I think this would be an excellent service for anyone with substantial pension pots, is unsure about leaving their money where it is or to transfer it to where they now live, and is looking for either just advice and help with admin or wants a full service. 

Helen C. United States, Pension transfer

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