Qualifying Recognised Overseas Pension Schemes “QROPS”

A QROPS is an overseas pension scheme that meets HM Revenue and Customs (HMRC) requirements. The QROPS programme launched on 6 April 2006 as part of new legislation with the objective of simplifying pensions.

A QROPS can receive the transfer of UK Pension Benefits without incurring an unauthorised payment and scheme sanction charge, which has several benefits…

Key features of a QROPS

Lump sum flexibility

Most UK pension schemes limit the lump sum you can take on retirement to 25%. The QROPS rules are the same that apply to UK registered pension schemes will apply to the QROPS for the transferred fund.

For example; if £100,000 is transferred and this grows to £120,000, you can take a lump sum of 25% of the transferred funds (£25,000). Any additional payment from the original £100,000 would be treated as an unauthorised payment. The £20,000 growth would be subject to the local scheme rules.

After the ten year reporting period (five-year reporting period before 6 April 2013) then UK payment rules no longer apply, but the QROPS provider will still need to ensure that their QROPS status is maintained. For some QROPS jurisdictions, providers will, therefore, ensure that at least 70% of the transferred amount is used to provide an income.

This potentially leaves the balance available as a lump sum but local pension rules in the QROPS jurisdiction may restrict this.

Income flexibility

The maximum and minimum amounts are wide and based on, among other things, life expectancy. The income calculation aims to ensure the fund can supply an income until death, although investment performance will have a large impact on this.

Succession Planning

The QROPS fund remaining at the member’s death is available to pass on to loved ones even if the member received income.

UK Inheritance Tax

Another of the QROPS rules is that they are not subject to UK inheritance tax (IHT) on the member’s death. Some local jurisdictions may apply a form of tax. For example, there may be local inheritance tax to pay depending on where the client is domiciled at death.

No income tax charge on death

Regardless of whether the member started taking benefits, no income tax charge is imposed on a lump sum paid to dependants at the member’s death, providing they are not UK resident.

For UK pensions, all crystallised benefits (UK pensions in draw down) are subject to 55% tax, therefore, the QROPS is likely to provide a larger fund to pass to beneficiaries.

Annuity selection

Since changes by the UK government on 9 December 2010, members of UK registered pension schemes do not have to buy an annuity at age 77 (75 before 22 June 2010).

As QROPS has never had such annuity purchase pressure, QROPS clients can remain invested as long as they wish although sometimes they may have to draw some income.

Reduced income tax

UK pensions are generally paid net of basic-rate tax. PAYE applies to all pensions from registered pension schemes. Non-UK tax resident members can, however, elect gross payment by completing the relevant HMRC form.

QROPS clients can transfer to a jurisdiction that pays gross income automatically and charges little or no income tax on pension benefits so they only pay any tax applicable in the country they live.

Protection from currency fluctuations

Whether saving for retirement or receiving pension, nearly all UK arrangements are denominated in sterling.

QROPS clients can invest in assets denominated in most currencies and receive benefit payments in local currency, removing any exchange rate risks or charges.

Convenience

UK pensions are structured around UK residents. If you are, or plan to be, based overseas then obtaining specialist advice on UK pensions can prove difficult.

QROPS schemes, designed and built in the 21st century for a more transient population, are well known to international advisers as able to meet the varying needs of clients.

It is possible to consolidate several pension arrangements into one scheme which eases administrative load and removes multiple fixed administration costs.

Investment selection

QROPS can give access to a wide choice of investments, including offshore investment bonds or offshore mutual shares. This flexibility is useful if you want to invest in assets that better reflect currency and inflation factors relating to where you want to retire.

Conclusion

Pension planning is complex but, by explaining the benefits, you will better understand whether this solution meets your needs.

With their, always current, knowledge of pensions our Wealth Management Team provides international clients’ with the choice and opportunity to make sure their pension arrangements fit with their lifestyle and goals.

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For more information on QROPS rules, our services or to discuss your pension planning please use the contact form in the blue bar.