Qualifying Recognised Overseas Pension Scheme: QROPS for short. So how does a QROPS work and what are the QROPS rules and regulations?
If you’re thinking of moving abroad and searching for a QROPS: such as a QROPS for India, a QROPS for Spain, or another location, then it’s vital to understand how these offshore pensions work.
Here we have put together a QROPS guide to help you understand how you can enjoy and manage a pension fund while you are living abroad. However, it is imperative to check with a qualified professional advisor before making any decisions.
QROPS Explained: What is the QROPS programme?
Launched in April 2006, QROPS is meant to simplify pensions. The idea is that it allows a person to transfer UK pension benefits without charges for unauthorised payments or other sanction fees.
It is aimed primarily at people who move permanently outside the UK, or who retire abroad, after building up a pension fund with HMRC. It also applies to those who build up a pension fund while in the UK but then wish to return to their home country to retire.
QROPS Explained: How does a QROPS work?
A QROPS is set up by financial companies and registered outside the UK. When it has received acceptance from HMRC it is free from UK pension taxes: instead it becomes subject to the tax laws of the country in which it is registered.
So, in short, when a QROPS is registered it is subject to taxation in that country and not in the UK.
Of course, nothing is that straightforward: there are other factors that will determine how much tax you have to pay on your savings and these should be carefully examined with a financial advisor. Factors that are taken into consideration include where you retire and when. However, in theory at least, as long as you register a QROPS in a country that has lower taxes and restrictions than the UK, you should see an overall benefit.
QROPS Explained: What are the advantages of a QROPS?
So, a QROPS is specifically designed to help you take your pension fund out of the UK and it can help you avoid potentially significant taxes when you retire overseas. Pensions left in the UK are usually taxed – up to 55 per cent. In addition, QROPS offer advantages in terms of pension drawdowns and the fact that they can be transferred to a beneficiary that you select in the event of your death.
Here is a closer look at their benefits:
– Payments and withdrawals could be taxed at rates lower than those in the UK.
– You might be able to enjoy greater control over your pension fund – including its management and investments.
– Pensions will be paid in local currency.
– Beneficiaries will not be liable for UK taxes if you choose to pass on funds in the event of your death.
– There is no need to buy an annuity with a QROPS pension.
– You can choose a QROPS in any registered country: not necessarily the one that you wish to retire to.
QROPS Explained: So how do you transfer a pension to a QROPS?
If, after thorough research and independent financial advice, you decide that a QROPS is right for you then you appoint an adviser who can guide you through the process. They should be able to help you pick the right QROPS based on your individual requirements and help to ensure that the transfer is as smooth as possible.
They should also help you to consolidate all pension assets: the process takes around two to three months to complete.
It is vital to bear in mind that you will not be able to enjoy the benefits of a QROPS from day one. During the first five years that you hold a QROPS you will be liable to disclose your activities in the UK: and potentially you could still be liable for UK pension taxes. Once those five years have passed you should be bound only by the tax laws of the country in which your QROPS is governed.
QROPS Explained: So are QROPS right for you?
While there are obvious benefits in terms of the savings that can be made with QROPS there is a lot to consider before deciding if they are right for you: another reason why seeking financial advice is so important.
On occasions, there can be issues with QROPS. For example, it could be revoked by the HMRC if it believes that the QROPS is not operating within its agreed boundaries. If this occurs then the special privileges are lost and you would become liable for the usual penalties that are levied against anyone who transfers pensions beyond UK borders.
So in conclusion, there are clearly many pros to taking out a QROPS: but also a handful of possible risks to consider. As such, you should seek professional independent financial advice before determining if this innovative pension scheme is right for you. Should you wish to find out more based on your individual investment strategy then you can contact Unite now who can introduce you to such an adviser.
PLEASE NOTE: This article is meant to be a general guide to QROPS. It is not to be constituted as financial advice. If you are considering taking out a QROPS seek independent financial advice first.