A QROPS is a recognised overseas pension scheme that meets certain requirements. The rules of the scheme must be broadly equivalent in terms of tax treatment, to a UK registered pension scheme and the scheme manager must provide Her Majesty's Revenue & Customs with information on certain 'events'.
However, if the QROPS pension is administered in a country where there is no stipulation on how retirement benefits are taken, it is possible to transfer the benefits to an international pension where 100% of the QROPS pensions value can be withdrawn after the age of 50 without any tax liability.
How are QROPS structured?
A QROPS is structured in a similar manner to a UK pension; i.e. there is an investment vehicle which is owned on your behalf by an offshore pension administrator (trustee). This trustee must be based outside the UK and approved by HMRC as a QROPS administrator.
Through the investment vehicle you can access a wide range of cash, bond, property, hedge, equity and commodity funds - and switch between these funds as market conditions change.
Who can move their pension into a QROPS?
Anyone who has been living overseas for 5 years or more and who has a UK 'onshore' pension scheme. As such, this scheme applies as much to Australians, New Zealanders and South Africans (and any other nationality) who have worked in the UK as to British expatriates. Most of the schemes are not available to US citizens and there can be problems with US residents;
Individuals who have not been offshore for 5 years can also apply for a QROPS if they are sure they not going to return to the UK within 5 full tax years of leaving.
My pension has a large proportion of Protected Rights - can I move these into a QROPS?
Yes. However, in many circumstances it may not be advisable to. Protected Rights often have far more favourable terms than standard pension benefits so we would strongly recommend speaking to us before transferring protected rights.
When can I take the pension benefits?
You can take the benefits from the day of the UK pensiontransfer. However, virtually all of the investment vehicles will have a minimum term of 5 years (unless you have less than 5 years to retirement). It is important to point out at this point that the money being transferred has been set aside for your retirement and we would strongly recommend leaving the money in the QROPS pension until you reach retirement.
Will payments from my QROPS pension fund be reported to HMRC in the UK?
QROPS providers are required to notify HRMC of any payments from transferred pensions in respect of a relevant member. However thisdoes not apply unless the member is:
Resident in the UK when the payment is made, or
Although not resident in the UK at that time, has been resident in the UK earlier in the tax year in which the payment is made or in any of the five tax years immediately preceding that tax year.
What is the minimum transfer I can make into a QROPS?
There is no minimum level. However, it may not be efficient to transfer a single smaller pension into a QROPS pension.
Can I make additional contributions to my QROPS?
Yes - depending on the investment vehicle being transferred into.
Is there any Taxation on the Transfer?
UK pensions transfers to a QROPS is a Benefit Crystallisation Event (BCE). This means it will give rise to an additional income tax charge where the transfer exceeds the individual's lifetime allowance. Currently, this allowance is set at £1,600,000.
My UK pension is IHT protected - is a QROPS?
From the 2008 Budget, it was announced that IHT "protection" is to be extended to UK tax relieved pension's savings held in overseas pension schemes. The change will be backdated to have effect from 6 April 2006.
Can I Return to the UK after taking the benefits?
Yes, you can return without prejudice. However, to ensure there is no taxable event, we would recommend staying offshore until the next tax year begins.
What happens if I return to the UK before taking the benefits?
The QROPS administrator will have to report this 'event' to HMRC and the international pension scheme will become subject to UK pension regulations again. If the administrator does not do so, they will lose their approved status - if you do not inform the administrator, you are breaking the law.
If I transfer my UK pension into a QROPS will I have to buy an annuity?
No, although you may if you wish. Without the need to purchase an annuity it means you can invest into better returning assets and gain the advantage of passing any remaining funds upon death to your loved ones.
How long will a transfer to a QROPS take?
In most cases UK pension transfers can take 2-3 months. The process is initiated by you completing a letter of authority enabling your adviser to get information from your pension provider of current benefits and a transfer value. This is not binding in any way and will only allow the adviser to receive details of the pension scheme you have.
Are there any circumstances in which I shouldn't transfer to a QROPS?
Yes there are, although in most situations we have come across so far, as long as you are non UK resident and intend to remain so for a total of at least 5 years the benefits to you can be immense. If you have guaranteed annuity rates set many years ago when interest rates were much higher, this would be one such situation that would need careful consideration and advice.
What happens if it is a Non-recognised transfers?
A non-recognised transfer may result in the following tax penalties:
An unauthorised member payment charge of 40% of the transfer value
If all unauthorised payments in a 12 month period are more than 25% of the fund value, an unauthorised payments surcharge of 15% of the transfer value will be payable by the individual
The registered pension scheme will have to pay a scheme sanction charge of 40% of the transfer value. If the scheme administrator has deducted the member's tax charge from the transfer payment and paid the tax charge to HMRC on the member's behalf, the scheme administrator may reduce the amount of the scheme sanction charge by the lesser of 25% and the amount of member's tax charge deducted as a proportion of the transfer payment
If the amount of non-recognised transfers exceed 40% of the scheme’s assets, it could be de-registered with a de-registration charge of 40% of the scheme’s assets.
A non-recognised UK pension transfer doesn’t count towards the annual allowance or the lifetime allowance!
Please register below to receive the latest QROPS updates