QROPS have become increasingly popular since they were first introduced in 2006. Since that time, thousands of UK expats living abroad have taken advantage of the significant advantages that they can offer. However, there is still an air of confusion around what they are and how they can potentially offer greater advantages for UK expats rather than keeping your pension back in the UK. In this series of articles, we will answer your questions, and provide some guidance on how best to assess whether a QROPS is a suitable vehicle for you.
What are QROPS?
Well, let’s start with the basics. A QROPS is a Qualifying Recognised Overseas Pension Scheme. It is effectively an overseas pension scheme which has been recognised and approved by the British HMRC as meeting certain requirements and regulations, which are of a similar standard to UK pensions, and which also meet the local laws and regulations that are in place in the jurisdiction in which the QROPS pension scheme is situated.
Why were QROPS Introduced?
QROPS were introduced as a result of UK pension reform in 2006, which was a direct result of having to comply with European directives relating to the transferability of pension schemes. Thus QROPS were a byproduct of having to comply with European laws.
How Can I Benefit from a QROPS?
Under the QROPS rules, UK expats living abroad are allowed to transfer their UK pension funds into a QROPS scheme based in another jurisdiction. However, it is important to note that the HMRC is still involved in the reporting process, notwithstanding the pension is still based overseas. The QROPS rules state that the QROPS pension provider must still report all payments and withdrawals to the HMRC for 5 years after the pension was transferred. After this time, the reporting requirement falls away. Therefore, after 5 years, there is much more flexibility and investment freedom in respect of how the pension assets are invested, and how they can be ultimately used.
So I Still Have to Buy An Annuity with a QROPS?
No. This is one of the biggest advantages of transferring your pension into a QROPS – there is NEVER an obligation to purchase an annuity.
Do I Still Need to Pay UK Tax on Income from my QROPS?
No. After you have been away from the UK for 5 consecutive tax years, the QROPS provider no longer has to report any withdrawals to the UK authorities. Therefore, at this point, you will only be subject to income tax in the country where you are resident. Depending on where you live, these rates can be very low, or even zero.
How Much Does it Cost to Establish a QROPS?
The costs of setting up a QROPS vary enormously, but the good news is that costs are coming down, as the market is becoming more and more competitive, and as a result, QROPS providers are lowering their costs. Typically, there will be a fund set up charge, which averages around 0.5% of the pension fund’s value, and an ongoing annual management charge, and possibly some adhoc administration charges. These charges compare very favourably to the charges of normal pension funds, and the benefits on offer significantly outweigh the initial upfront costs involved.
What is the Process Involved in Setting Up a QROPS?
The first step involved is to seek professional advice from someone with significant experience of QROPS and pension transfers. Because of the complex nature of pension transfers, a professional adviser is required to advise you whether, in the first place, a QROPS transfer is your best option, and if it is, to advise you on the best provider and product to suit your individual circumstances.
