QROPS stands for Qualifying Recognised Overseas Pension Scheme and allows individuals to transfer their UK accrued pension into another jurisdiction when they retire abroad.
UK pensions have traditionally been frozen when the holder retires overseas with no access to their money. This changed in April 2006, which is known as A-Day, when HMRC changed regulations surrounding pensions enabling holders to transfer their substantial funds to another country when they retire to a different jurisdiction.
By transferring your pension into a QROPS scheme, not only will you have immediate access to your money when you retire but you will also be able to receive a lump sum free of tax and pass on your pension funds to your beneficiaries upon your death.
For a QROPS scheme to qualify it must be legally recognised by HMRC and must meet the following criteria:
- It must be recognised by HMRC for tax purposes – therefore, it must be open to residents of the country where it is based where there are stable taxation laws in place.
- The maximum lump sum should not exceed 30% and 70% to provide an income.
- To draw your income you must be at least aged 55.
Benefits of transferring your pension into a QROPS scheme
If you transfer your UK pension into a QROPS scheme based in another jurisdiction and you plan to retire abroad permanently, then the benefits open to you will help you live your retirement years in luxury.
The major advantages of transferring your pension into a QROPS include:
- Greater investment freedom with the flexibility of investing in a much wider range of funds and investments
- Ability to pass on pension funds to your beneficiaries upon your death
- Tax efficient
- Up to 30% of the fund as a lump sum
- Flexible currency
- Tax planning opportunities
For your pension payments to become more tax efficient, or free of tax, it is more beneficial to transfer your pension into a QROPS scheme in a neutral location, for example Guernsey.
If you choose to transfer your pension into a QROPS fund in another country then you will have to weigh up all the political and currency risks that will affect the value of your pension in the future. You will need to find out whether the country you have retired to has a volatile currency, or political agendas, or whether there are more serious monetary risks within the economy.
Could it benefit me more leaving my pension in the UK?
If you leave your pension in the UK you will pay income tax at your highest marginal rate, tax of 35% on death, and a further 40% Inheritance Tax. If you survive beyond the age of 77 the cumulative death taxes could amount to 82%.
There are greater benefits available to you if you transfer your pension to another jurisdiction as if left in the UK your pension could potentially face:
- The application of the tax rates referred to above – This applies even if you are outside of the UK when you reach retirement age / have retired.
- The inability to pass on the remainder of your pension to your beneficiaries upon your death including your spouse and children.
- Poor investment flexibility and choice
- Below average growth in your pension fund
QROPS solutions
Effective planning for your retirement can make the difference between being just able to live and living comfortably. If you have a substantial pension and are planning to retire abroad it makes sense to get sound financial advice from pension experts on QROPS.
For further information please email: gareth.jones@pic-uae.com
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