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QROPS vs SIPP: Which pension scheme is right for you?

Discover the major differences between a QROPS and a SIPP before getting advice on which pension scheme is more suitable for you

Last updated 5 April 2019 at 15:05

Recent changes to UK pensions, such as removing the need to purchase an annuity and the abolition of the 55% "pension death tax", have meant QROPS may have lost some of their appeal compared to a SIPP or other pensions.

In truth, a QROPS and a SIPP are now more similar than ever. However, for people living outside the UK, a QROPS can still offer distinct advantages over a SIPP.

Below we have brought together the key questions which are most common when discussing QROPS and SIPPs to enable you to understand the key differences in plain, simple English.

As always, before you make a decision about any financial product you must seek independent advice.

QROPS vs SIPP: The basics

The following table outlines the basics of how a QROPS and a SIPP compare.

 QROPSSIPP
Full name Qualifying Recognised Overseas Pension Scheme Self-Invested Personal Pension
Jurisdiction Can be held in a tax advantageous jurisdiction outside the UK Always resides in the UK 
Year introduced 2006 1989 
Country of residence for qualification Anywhere Anywhere
Annuities No compulsion to ever purchase an annuity No obligation to purchase an annuity, but still an option
Cost Fully dependent on the size of fund, your adviser will advise on any costs. See our overview of QROPS Charges for more information.
What if you return to the UK? If you keep the pension when you return, it will be treated as though it was a SIPP. But you may be able to transfer it to an alternative scheme such as a QNUPS and continue to receive additional benefits. You should always seek advice before returning to the UK. Nothing changes.

QROPS vs SIPP: Income options

This table compares how you are able to receive your pension as an income both before and after you retire.

 QROPSSIPP
Before retirement Up to 30% pension commencement lump sum free from UK tax from the age of 55 (and in some cases as early as 50). Tax may be due in the country of residence. 25% lump sum free from UK tax after you reach 55. Tax may be due in the country of residence.
Before age 75 Income drawdown Income can now be based on GAD rates or, where applicable, flexible drawdown.
After age 75 Income draw-down continues No change
Income tax If you live outside of the UK, there is no UK income tax but you will be subject to local income tax

QROPS vs SIPP: What happens when you die

This table compares what happens to your remaining pension funds when you die.

 QROPSSIPP
Inheritance tax Not subject to UK inheritance tax (IHT)
Penalties No penalties. 100% is passed to your surviving partner or other beneficiaries (thanks to the abolition of the pension death tax on the 29th September 2014)

Making the decision between a QROPS and a SIPP

In recent months, due to the pension reforms announced by George Osborne, the differences between QROPS and SIPP are not as great as they were.

If you are not resident in the UK you will have presumably considered a QROPS at some stage, which is perfectly understandable given the changes to the pension system.

One key difference between the two is the quality of advice you may get when making your decision and it is important to remember that not all financial advisers are qualified or able to recommend a SIPP.

When you request advice from an independent financial adviser from our network, you will get the complete picture on which is best for you, based on your own personal circumstances. It may even be that leaving your pension where it is could be the best option, rather than transferring it.

If you would like to speak to someone to understand more about all of your options, enter your details using the form and we will arrange for an independent adviser to contact you and talk you through each option so you can make an informed decision.

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