Pension savings are important to think about, especially if you are approaching retirement age.
If you have a sizable private pension through your work, live abroad or are thinking of moving abroad and want to take control of income in your retirement years, you may want to consider a QROPS or ROPS.
When it comes to pensions, there are so many different options out there that it can be hard to know where to go for financial advice. Currently, one of the best options on the market offered by advisory firms for British expats is a QROPS (Qualifying Recognised Overseas Pension Scheme).
Brite Advisors can provide informative advice about taking out a QROPS, and we can do all the work for you if you want to apply to the scheme. If you’re an expat, or someone who has worked in the UK but are now living abroad and looking to consolidate your pensions into one pot, or simply want to get some financial advice before taking the leap, then our trusted investment advisers are on hand to help you every step of the way!
QROPS explained: transferring a pension overseas
Whilst there are several different overseas pension options available at the moment, a QROPS is probably the most well-known of the lot – also making it one of the more popular options you can currently take out.
QROPS were largely created because HMRC recognised that there were certain pension issues that limited pension savings for UK expats. Especially targeted to benefit British workers who have moved abroad, QROPS/ROPS allow you to transfer a pension that you’ve built up in the UK to an overseas scheme. As such, only people who have previously been permanent residents in the UK can apply for one.
QROPS were originally introduced into the UK in 2006 and, in simple terms, are overseas pension schemes that are designed to allow British citizens to transfer their pension funds abroad to an overseas jurisdiction. This is mostly due to the tax relief implications and greater financial freedom that some countries have when compared to the UK, also allowing for greater income potential than a British pension scheme.
It’s important to note that these overseas pension schemes have to be recognised by HMRC in the local jurisdiction, which may limit the pension provider you go for, although it will help you to avoid falling for a pension scam.
QROPS: qualifying criteria & eligibility
There are several criteria you must meet in order to be eligible for a QROPS, so it’s important to know what these are before applying for one. It’s recommended that you speak to a trusted financial adviser before going further – at Brite Advisors, we are on hand to give qualified financial advice to expats about any pension-related questions.
- Proof of residence: You have to be somebody who has previously worked and lived in the UK, and you can no longer be a resident of the nation. In special circumstances, a UK resident may be eligible for a QROPS (for example, if you’re planning to leave the UK for an overseas country within the next 12 months), but you’ll need to provide proof of your planned departures. Proof requested is usually in the form of a letter of employment/evidence of housing overseas (e.g. a lease).
- Age: You must be between the ages of 18 and 75.
- Pension history: You need to have contributed to either an occupational pension scheme or a private pension pot in the UK.
- Nationality: You don’t have to be a UK national or someone who was born in the UK – however, the UK must have been your country of residence at some point, and you must have worked in the UK whilst paying into a UK-based private pension.
- Minimum value requirements: Depending on the provider you choose to go with, there will be minimum value requirements, so your pension must be valued above this amount – although some providers will allow you to top up your funds to meet the required amount
Other essential information
You have the option to take all of the cash in your QROPS as a lump sum. However, this may have higher tax implications, so you might be better off drawing down a set amount yearly instead. The pension schemes we use generally have a low tax rate, which is something we can advise more on if you decide to take out a QROPS with us.
Final salary (or defined benefit) schemes can be transferred if you wish, with a QROPS providing a more flexible overall structure if transferred. The 10-year rule also applies with QROPS – once a transfer is complete, your pension scheme administrator has to report back to HMRC so they can monitor your overseas scheme and ensure it still meets the requirements to remain compliant.
Only private pensions can be transferred to a QROPS, so you can’t use a state pension or an annuity provided by an insurance company. Only QROPS trustees can accept pension transfers to a QROPS from an appointed qualified intermediary.
If you want to benefit from a QROPS, then it’s recommended you have over £50,000 to transfer, although this is not definitive – our team of trusted pension investment advisers will be able to provide professional advice and demonstrate how a QROPS can be beneficial to you, so long as you meet the eligibility criteria.
Why do people usually take out a QROPS
The main reason for taking out a QROPS is to avoid paying tax charges that may apply in the UK, but don’t apply in another qualifying country.
Tax applies to UK-registered pension schemes when they reach a certain value, with the current lifetime allowance being £1,073,100, although this could change in the future.
When a pension is transferred to a recognised scheme in an overseas country, the future growth of the fund is not subject to this tax charge, making a QROPS a viable option for expats who expect their pension income to grow over the tax threshold in years to come.
There are also many other benefits to consolidating and transferring your pensions into a QROPS, which can be found below in our pros and cons section.
QROPS or ROPS?
There’s a lot of confusion about the difference between QROPS and ROPS, so this section will cover them a little more to broaden your understanding of what both pension schemes entail adequately.
Whilst HMRC did change the name of QROPS to ROPS in 2015, QROPS is still available (although to a lesser degree and is being phased out). ROPS is now the dominant overseas pension scheme for British expats.
The 2015 change
In 2015, ROPS was created with the establishment of the pensions age test, which is a new qualifying test. The pensions age test stops anyone under the age of 55 from accessing their pension fund, unless there are exceptional circumstances – for example, if they have been diagnosed with a terminal illness.
Once you reach the age of 55, you can choose to draw down the money saved in your pension to spend as you wish, which is also something created in 2015, as part of the government’s flexible access pension rules. This option is available to any country of residence based in the EEC, with the rules still applying to the UK, despite having left the European Union.
ROPS vs QROPS classification
A pension scheme is classed as a ROPS if it meets the ROPS requirements set out in legislation – however, for a pension scheme to be classed as a QROPS, it must meet the ROPS requirements and the manager of the scheme must also notify HMRC about this. In addition, the scheme manager must promise to notify HMRC if the scheme stops being classified as a ROPS, and they will have to give information about the scheme to HMRC, as well as to other pension schemes and individuals.
Another important thing to note here is that the individual taking out the pension arrangement must check for themselves that the scheme they use meets all the criteria laid out in the ROPS requirements, as, despite being on the list, HMRC does not vet or guarantee every single pension provider on the list.
HMRC state that ‘HMRC cannot guarantee these (schemes) are ROPS or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you have to pay tax on any transfer of pension savings.’
In layman’s terms, ROPS are not guaranteed by HMRC as fulfilling the eligibility requirements, whereas QROPS are, as the scheme manager has to provide more information to HMRC about the scheme. This means that a QROPS may be more desirable, unless you can prove definitively that your ROPS is tax-free and fits the ROPS requirements.
QROPS: pros & cons
When making any financial decisions, it’s important to make yourself fully aware of all the pros and cons. With QROPS, there are several pros and cons that will affect whether you want to go ahead with applying for one, and, of course, Brite Advisors are also on hand to help if you need it!
You’ll likely be on a different pension plan already, but we’re able to advise you on how to transfer your current pension to a QROPS and can complete the process for you along the way.
Whilst QROPS are largely a positive thing, the benefits will depend on your current and expected future financial prospects, as well as the pension you currently have and the amount of money you have saved in your pension at the moment. As previously stated, it’s generally considered to be beneficial if you have more than £50,000 in your British pension fund, so it may not be worth taking out a QROPS if you have a smaller amount, although we do have other options available for you if this is the case.
QROPS: the advantages
There are many advantages to transferring your current pension to a QROPS, with the main ones listed below:
- As QROPS are pensions taken out in a foreign country, you do not have to adhere to British pension rules and legislation. This may differ depending on the scheme you join and the country it is based in – however, the QROPS Brite Advisors invest in are fully vetted and checked first to make sure that you’re joining the best foreign pension for your money.
- QROPS are subject to local pension tax rules, with the benefits being drawn in your place of residency, which ultimately means that your tax rates should be very low and may even amount to nothing, depending on your country of choice.
- Once your pension has been transferred overseas, the money is no longer subject to British tax rules when you die, so the entire amount left in the fund is passed to your beneficiaries tax-free, as inheritance tax laws do not apply.
- When your pension is transferred to a QROPS, the UK lifetime allowance does not apply, and you will not be subject to the extra tax charges, making a QROPS a very worthy pension if you have a large sum of money built up in your pension.
- Your pension can be withdrawn at the age of 55, allowing you to reduce your retirement age and withdraw your pension in the currency of your choice.
- On death, you don’t need to pay a UK tax charge.
- You can consolidate several pensions into one with a QROPS, and you can also keep adding money to it over time, allowing for multiple transfers. This means that you can keep all your money in one place, making it much easier and quicker to manage, also reducing overall fees.
- QROPS are flexible, so if you want to, you can choose where your money is invested. There are many investment options and funds to choose from, allowing for a more diverse investment portfolio. You can also change the risk factor of your portfolio, depending on how you want your money to be invested.
If you decide you want to transfer your money to a QROPS, Brite Advisors are on hand to provide investment advice to make sure your money is invested in the portfolio of your choice.
QROPS: the disadvantages
Of course, there are several disadvantages of investing your pension in a QROPS, and it’s important to know the cons as well as the pros, so you can get the best financial advice available to make the right decision for yourself.
- You should be aware that you may still be subject to UK taxation legislation if you move outside of the EEA within 5 years of your taxation date – this is based on the financial year and not the calendar year. Tax penalties of up to 55% may apply in these situations.
- The flexibility of a QROPS is obviously seen as a major advantage, especially considering that you can generally withdraw income whenever you like, so long as you have reached retirement age. This can be a good thing, but it can also mean that your pension may become exhausted a lot quicker than it might do if you were residing on British soil and subject to British pension legislation. On the flip side, a British final salary pension or annuity provides an income for life, meaning you can’t exhaust it. If you carefully phase the expenditure of your money over the life of your retirement, then this shouldn’t be an issue, but it’s still something to be aware of.
- British final salary pension schemes tend to offer cost of living adjustments based on inflation and other similar things. However, with a QROPS, these benefits do not apply, meaning you only have the money that you put into it, plus or minus any growth on your investments. Tax benefits of an overseas pension, on the other hand, may outweigh these benefits anyway.
- QROPS established outside of the eurozone may have different legislation and regulations, as they don’t have to comply with EU regulations. This means that non-EU QROPS may lack regulation, which can lead to financial malpractice in some situations. If you want to consolidate your pensions into a QROPS, you may find it useful to look at the EU options first, as they tend to offer more protection.
A QROPS may not be worth your while if you have a small pension pot. Whilst they do provide tax relief that you can’t get if you reside in the UK, they are also subject to set up fees and may take a while to get set up. If you have a small pension pot, you might wish to consider one of our other options – you could always choose to set up a QROPS later in life, once your pension has accrued more funds.
Interested in transferring to a QROPS? look no further than Brite Advisors…
If you’ve read the information above, fit the eligibility criteria and you’ve decided you want to invest in a QROPS, then it’s time for us to talk. Our highly qualified and professional investment advisors can give you a great deal of pension advice to suit any budget or pension plan.
Of course, you must understand what you are getting into when you decide to take out a QROPS. Our financial advisors have a wealth of experience in the field, so you can rest assured that you and your retirement plans are in safe hands. At every step, we will be there to give you sound advice to help you maximise your pension pot to create an income for life, even after retirement.
Your individual circumstances will be taken into account when communicating with your scheme provider, but it’s vital to check that the overseas pension scheme you’re transferring to is on the list of recognised schemes produced by HMRC.
Brite Advisors offer several QROPS in Gibraltar and Malta which are officially recognised by HMRC.
To get a better view of your pension and begin your QROPS transfer, get in touch with Brite Advisors today.
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