QROPS - Qualified Recognised Overseas pension Schemes

QROPS - Qualified Recognised Overseas Pension Scheme

The following information will be relevant to:

1.  A British expat who intends to or already has moved outside the UK, or
2.  An International worker (non British citizen) who is living in Italy


Of which, both categories would be holders of a UK final salary or defined contribution pension plan.

If this is not relevant for you it may be for someone you know.  Feel free to forward the information to them.


The Background

In 2006 the UK Government overhauled their pension system, and decided that you could now move your UK pension overseas into a UK approved pension scheme, if you also intended on moving overseas yourself.  This applied specifically to those people who had not yet retired, or those who had retired but were drawing down from their personal pension pot.

Where can a QROPS member live and where does a QROPS have to be set up?

The first question you may ask is "Why would I want to move my pension from the UK to Italy"?  The good news is you don't have to!

A QROPS can be based in any country outside the UK, providing the scheme follows the rules stipulated by HM Revenue and Customs.

One advantage is a QROPS can be set up in one country while the member can live somewhere else. This allows the pension to grow in a low tax jurisdiction while the benefits can be paid out in any major currency in another country with low income tax rates.

What are the benefits?

The benefits are numerous but here are a few:

1.  The income from the pension will be paid GROSS, i.e no tax is deducted at source by the UK tax man.  Depending on your residency, you can then choose where to pay the tax and also reduce your liabilities to tax.  In addition, you can draw down more income than you would be able to do so under a UK scheme.

2.  No Capital Gains or Income tax is charged on the funds in the scheme.

3.  You can consolidate your pensions into one offshore pension plan rather than having many different ones, which might be difficult to administer.

4.  The benefits can be paid out in the currency of your choice, thereby reducing the bank fees and costs associated with a transfer from one currency to another.  In addition you have more investment choices.

5.  No obligation to purchase an annuity and therefore you keep control of your assets and can pass them onto your heirs on death.

6.  The option to take more of a lump sum than you would be able to do so in a UK pension scheme.

7.  And finally, saving the best until last: you can potentially avoid the 55% death charge on your assets that a UK scheme would impose on your pension fund should you die after age 75.  Which means you can pass more of your assets to your nominated beneficiaries on death.

What is the 5 year rule?
During the first 5 years after leaving the UK, the QROPS will be expected to report all activity to the UK Inland Revenue to ensure it still qualifies under the rules.  After 5 years there are no reporting requirements to the Inland Revenue and therefore no loss of UK tax relief.

Is it right for you or someone you know?

Of course, a QROPS may or may not be right for everyone.  In addition there are some well documented cases of QROPS which allow UK pension holders to release all of the cash in their pensions, after age 55, and after they have spent 5 years overseas.  Although some of these schemes are currently recognised by the UK, notably New Zealand based QROPS, current investigations are in place to determine whether this will continue. Both Singapore and Hong Kong have seen their once recognised QROPS schemes revoked in recent years by failing to meet the required standards imposed in the UK. 

So, all in all, this is the most significant piece of UK pension holder legislation to affect a very large group of people in a long time. The implications are wide ranging and for those people who have moved overseas and those people who have worked in the UK but have no intention of returning, QROPS could mean more control and less tax on assets which no longer need to fall under the UK tax net. 

Professional advice is crucial and choosing the right jurisdiction for your pension is vital.

If you find this information useful or you would like further detail, then feel free to get in touch.  You may also know someone to whom it could be relevant, so forward it on.  You could be doing someone a BIG favour!.


NB  Since writing this article in October 2010, a number of legislation changes have been proposed by the UK HMRC, specifically in relation to QROPS.  At time of writing it is unclear about the future of the benefits of a QROPS, but things should become more clear at the start of 2012.