What is a QROPS and do I need one?

Pensions and investments are full of incomprehensible jargon, but it pays to find out a few of the key terms, and if you are thinking of retiring abroad you may need to know about QROPS.

QROPS stands for ‘qualifying recognised overseas pension scheme’. Simply put, it is a pension overseas that HMRC is happy to allow your UK pension to be transferred into.

If you are thinking of moving abroad, or you already live overseas, a QROPS may be useful for you. If you retire in that country, having your pension in a QROPS would mean you could possibly receive your income in the local currency rather than sterling, avoiding foreign exchange fluctuations. Having a local pension scheme can also make it easier to stay on the right side of any tax and regulation changes in the country you reside. Before making a decision, it is important to take regulated financial advice, as you may be giving up valuable guarantees and benefits on your old scheme.

Beware of 25% transfer tax

Since March 2017 transfers to QROPS can come with a 25% tax charge, but most people can avoid it. No charge applies if you are resident in the country where the QROPS receiving your transfer is based, or you reside in a European Economic Area (EEA) country and the QROPS you are transferring to is based in another EEA country.

Likewise, there’s no charge if you work abroad and are transferring your UK retirement pot to a workplace pension run by your employer.

But get your paperwork in order; if your UK pension does not receive the correct information, it will charge you the 25% tax for the transfer and you’ll need to apply for a refund at a later date. Also bear in mind if your circumstances change within 5 years, for example, you move to another country, you may then have to pay the 25% tax charge.

Separately, note that if you are under 75 and transfer into a QROPS, the value of your pot will be tested against the UK lifetime pension allowance, currently £1.05m. If you breach that limit, you’ll have to pay a 25% tax charge on the excess. In the UK, If the value of all of your pension benefits, across all schemes, exceeds the lifetime allowance, any excess attracts a tax charge of 25% if it is withdrawn as an income (for instance from an annuity or a drawdown arrangement) or 55% if it is withdrawn as a cash lump sum

Stick to recognised QROPS

It is extremely important you only transfer to a QROPS recognised by HMRC. There is a list here

Transferring your UK pension to an overseas scheme, not on that list will cost you a 55% unauthorised tax charge, or more. On top of that, the scheme could be badly run or even a scam, and you could lose everything with no recourse to compensation.

The rules

Moving to a QROPS still means abiding by some UK rules, the most important one being you can’t access your pension before age 55 (if you do you face a 55% tax charge). Other UK tax rules can apply for 5 years after you have transferred.

If you moved into a QROPS before 6th April 2017 you have to reside outside the UK for 5 consecutive tax years before you can draw on your pension. This has been upped to 10 years for those transferring after that date. Before you transfer, find out what tax you will pay on the pension income, as this will vary.

Finally, you don’t have to have a QROPS if you are retiring abroad, but if you do choose one, be clear about any charges you have to pay for transferring, and what the costs are of the new scheme.

Brite Advisors have HMRC recognised overseas pension schemes and can do all the hard work for you. If you would like more information about a QROPS or an International SIPP, please contact us and we’ll get in touch soon.