A Guide to Qualifying Recognized Overseas Pension Schemes (QROPS) Pension Transfers for 2014/2015
Do you hold a UK pension scheme? Are you living overseas or thinking about retiring abroad? Are you a foreign national who has ever worked in the UK? Do you have a frozen pension in the UK? Do you have multiple pension schemes in the UK and plan to leave the UK soon? Then a QROPS could be for you.
Tax on a QROPS – What will the taxes be on income, growth and death?
DTA’s and QROPS – The Importance of Double Taxation Agreements Upon QROPS Pension Transfers
QROPS vs QNUPS Vs SIPPs – Understanding overseas pension schemes
What is a QROPS?
A QROPS is simply an overseas pension scheme which still follows elements of UK pension rules, but is outside the UK tax net. UK pension schemes can be transferred to an offshore QROPS.
QROPS were designed in 2006 to allow freedom of movement of UK pensions offshore. This freedom of movement of capital is laid out under the EU Schengen agreement of 1985.
“A QROPS is like a BLANK CANVAS where you can choose from any currency you like and hold almost any investment that is listed on a major exchange as well as hold commercial property”.
Who can transfer to a QROPS?
A QROPS is designed for British expats who intend to live or retire abroad. Other nationalities that have worked in the UK and built up a substantial UK pension can also transfer to a QROP scheme abroad.
For example Irish citizens, New Zealanders, Australians, Europeans, Africans, Indians, Asians, Canadians and American who have worked in the UK can all apply to transfer their UK pensions abroad.
Examples of QROPS candidates
- An Indian doctor who has worked in the UK and wishing to retire in India
- An American employee of a UK pharmaceutical country who will return back to the USA
- An Australian or New Zealander who has worked in London, but wanting to retire outside the UK
- A British businessman who has worked in the UK all his life, but wishes to retire in the sun in a hot country such as Spain, France, the Caribbean or Thailand
- A British man or woman who has recently divorced and wants to retire overseas
- A British expat who has already been living and working offshore for many years, but paid into a UK private pension years ago
- A British expat who wants to work offshore for five or more years before returning to live or retire in the UK
Why Would You Transfer a UK Pension to a QROPS?
The benefits of a QROPS
- Currency hedging. If you are moving to Europe, you may want to transfer all your pensions into EUR. That way, your pension income won’t go up and down with the exchange rates. This way, you are reducing your risk and exposure to the currency markets. If you are shopping and buying your groceries in EUR, it makes sense to have your income in EUR.
- Currency choice. Some may wish to keep their pensions in GBP or transfer to EUR or transfer to USD. For frequent travelers with large pension pots, you may wish to hold several currencies within your pension portfolio. USD for those trips to the USA, Latin countries and the Caribbean. EUR for trips within Europe and GBP for trips back home.
- Tax purposes. If you live outside the UK, why would you keep paying UK taxes on your pension? A move to a QROPS avoids inheritance tax. There is zero tax upon death. You avoid HMRC taxing your pension pot at 55% upon death. You also avoid tax on income. No more UK income taxes.
- Investment Choice. Transfer your pension offshore and then invest wherever you like. Choose from a universe of mutual funds, ETF’s, bond funds, high interest accounts, etc.
- Ease of management. Easily manage all your pensions in one place. Transfer all your different pensions into one place where you can view it online whenever you like.
- Get more cash upfront. Under a QROPS arrangement, you can get 30% of all your cash at 55. This is 20% higher than what you can get in the UK.
- Get cash earlier in life. Some QROPS allow you to receive benefits at 50 years old if you have been abroad for 5 years. Most qROPS allow a pension at 55 which can still be early than some cases in Britain.
- Easier inheritance planning capabilities. The QROPS will pass on all your pension pot on death or you can set it up to provide whoever you like with an income for life via a succession trust.
- Tax Efficiency if you return to the UK. If you have been offshore for five years, then there are many tax advantages if you return to the UK. Thanks to top slicing relief and the ability to draw benefits offshore, you can effectively reduce your IHT charge to zero even if you return to the UK.
- Security of assets. There are many defined benefit schemes in the UK whose liabilities are even larger than a firm’s market capitalization (e.g. British Airways). Almost all UK final salary schemes have been closed to new members because of elevating costs. If you think your scheme is at risk, you are better off transferring out your final salary scheme. Within a QROPS, you can transfer pension monies into an insurance wrapper in the Isle of Man. The IOM deposit insurance scheme can protect up to 90% of any cash you have in the bond.