Qualifying Recognised Overseas Pension Scheme (QROPS)
A QROPS is a medium of moving one’s UK pension corpus to a scheme administered outside the UK, that is more flexible and easily accessible for people who have retired abroad or are planning to do so.
All most all QROPS work in the same way as UK pensions –that is pension administrator (trustee) will manage the pension scheme on your behalf. For a QROPS the trustee must be based outside the UK.
A QROPS could be ideal if one:
Ø Is definitely intending to retire outside the UK and not return.
Ø Has a substantial amount invested in an existing UK pension scheme or has a smaller amount in his/her UK pension scheme but he/she is living and working abroad already and want to continue saving for their retirement.
Ø Has at least five years left before retirement
It could be better off with the QROPS for the following reasons:
Ø It adds extra flexibility and control on one’s pension corpus
Ø Increased flexibility over who can benefit from one’s pension fund following death of the pension account holder
Ø Reduce one’s exposure to sterling denominated funds and other pension restrictions
Benefits of a QROPS
In comparison to general UK pension rules, a QROPS could offer the following advantages, subject to local pension rules.
Ø It could avoid you needing to complete HMRC paperwork to get your pension paid without deduction of UK income tax.
Ø If you die whilst taking payments, the remaining funds are not lost. Your family will be able to inherit your pension benefits free of UK inheritance tax.
Ø A wider choice of investment opportunities- particularly useful if you want to invest in assets which reflect the currency and inflation factors where you plan to retire, rather than UK-baised choices.
Ø Only 70% of your transferred fund must be used to provide you with an income for life.
Ø No restrictions on fund size.
Choosing the right QROPS
You are free to choose any scheme that’s appropriate to your circumstances rather than restricting yourself to local schemes. For instance, if you are currently living in Singapore but planning to retire to Thailand, you could still choose a QROPS administered in the Isle of Man (the jurisdiction). However, you should choose your jurisdiction carefully, to ensure that their local rules fit in with your needs.
You will only avoid a UK tax bill if the overseas scheme is a QROPS. That means it meets HMRC rules in the UK. The rules are as follows.
Ø At least 70% of the funds transferred to your QROPS must be used to provide you with an income for life.
Ø The scheme administrator will inform HMRC if you take any money out of the scheme while you are still a UK tax resident, or within the first five tax years after you have moved permanently abroad.
Ø The scheme must be recognized in the jurisdiction as a pension scheme and be open to local resident there.
If you transfer your pension pot to an overseas pension scheme that is not a QROPS, certainly HMRC would consider it an unauthorized transfer, and you would have to pay HMRC up to 70% of the value of your pension. The QROPS will combine the local rules with the UK’s QROPS requirements. Typically, if these rules differ, the stricter ones will apply. One can also consolidate several UK pension schemes into a single QROPS. So it will make record keeping easier and also saves from paying multiple administration costs.
Comparison of benefits between QROPS and a UK based Pension scheme (QROPS vs UK based Pension scheme)
1) UK-based scheme: Designed for UK residents, so if you are based overseas it can be hard to access UK pension’s expertise.
QROPS: Whereas QROPS designed for a more transient population, and international advisers are more familiar with them.
2) UK-based scheme: Most investments are held in sterling, so payments are affected by exchange rate fluctuations and currency conversion charges.
QROPS: Whereas in QROPS, you can invest in most currencies, and choose to receive payments in your local currency.
3) UK-based scheme: You can choose to retire at any age from 55 onwards.
QROPS: Most schemes allow the same flexibility as the UK, but local rules may differ.
4) UK-based scheme: Most UK schemes allow you to withdraw a lump sum of up to 25% of the pension fund on retirement.
QROPS: You can withdraw the entire pension fund except for 70% of the value transferred from your UK pension, depending on local rules.
5) UK-based scheme: Following changes made from 6 April 2011 by the UK Government, you can now leave your asset invested as long as you want. However, the amount of income you receive for your pension fund is determined by set rates agreed by the UK Government.
QROPS: You can leave your assets invested as long as you want, and have greater flexibility when choosing the amount of income you take.
6) UK-based scheme: Your pension income will be paid via the pay as you earn (PAYE) system. To have payments made to you without deduction of UK income tax, you must complete an HMRC form to declare non-UK residence.
QROPS: You can choose a QROPS jurisdiction where income is paid without deduction of local taxes, so you are only liable for any taxes applying where you are resident.
7) UK-based scheme: Usually offers UK-based investments so may be less suitable for your new country of residence.
QROPS: Can offer a wide choice of investments, including shares, mutual funds and packaged investment products.
8) UK-based scheme: UK pension schemes often have complex charging structures, so it’s hard to tell whether you are getting value for money.
QROPS: More modern and streamlined, QROPS are also a good way to consolidate your pension arrangements.
9) UK-based scheme: If you purchase an annuity, it will almost certainly end when you die, so you can’t use it to make provision for your family.
QROPS: You can leave the assets & investments in your pension fund to your family by making an expression of wishes to the QROPS provider.
10) UK-based scheme: If a lump sum death benefit is paid from your pension to your spouse rather than income, a member payment charge of 55% will apply to the lump sum.
QROPS: Provided you are not UK resident when you die, then no member payment charge will be payable on any lump sum paid.
QROPS offer a wide range of benefits if you are living, or planning to spend your retirement, abroad. However, QROPS are not for everyone. It’s better to check properly, whether a QROPS could be right for you, before going for the same.
It is good to consider a QROPS if:
a) You are no longer resident in the UK, but have an existing UK pension.
b) You are certain that you will continue to live outside the UK for at least five tax years.
c) And you have no plans to return except for short visits.
On the other hand it is good to keep the existing UK pension plans if:
a) You expect to return to the UK for long periods, or permanently, in the future.
b) Or you plan to stay in the UK
A QROPS may also be suitable if you are still living in the UK, but plan to retire permanently abroad and are sure that you will then be able to retire abroad. Before transferring pension to a QROPS, it is good to be aware of all the benefits offered by your current arrangements. It is advisable to consider a QROPS if:
a) You have a substantial personal and/or occupational pension plan or you have a smaller amount in your UK pension scheme but you are living and working abroad already and want to continue saving for your retirement.
b) You have not yet purchased annuity.
c) Your existing pension arrangement is not particularly attractive for one of these reasons:
Ø You are in a “final salary” scheme, but mergers, acquisitions or poor investment returns mean there may not be enough funds to meet all the liabilities and you are not entitled to compensation from the UK pension protection fund(if you are entitled to compensation, moving to a QROPS would deprive you of that right)
Ø You have a “defined contribution” or “money purchase” scheme with no guarantee, or you are concerned about high charges.
It could be better to keep your existing UK pension plan if:
a) Your only pension is the basic state pension.
b) Or your pension plan is relatively small.
c) Or you have already bought a pension annuity.
d) Or your pension is in a valuable ‘final salary’ or ‘defined benefit” scheme, with enough funds to meet all its liabilities.
e) Or it includes benefits such as a guarantee, spouse’s pension, life cover or higher tax-free lump sums.
f) Or your employer bears the costs of the scheme.
g) Or you have a ‘defined contribution’ or ‘money purchase’ scheme with a guarantee, or with very competitive charges.
QROPS can benefit your family
UK annuities usually end when when the recipient dies, and don’t leave any extra money for their family or beneficiaries. It is possible to arrange one that will continue paying after your death, but it would increase the cost and reduce your income.
With a QROPS, on the other hand, since you don’t need to buy an annuity, your fund won’t vanish when you die. Instead, you can pass it on to your loved ones. QROPS are not usually subject to inheritance tax, although some jurisdictions may apply a form of tax. This means you should be able to pass the entire pension fund on to your beneficiaries free from UK inheritance tax. Moving your pension plans abroad can also support a claim that you are no longer considered subject to UK inheritance tax, which should mean your beneficiaries do not pay UK inheritance tax on anything they inherit from you. You can nominate beneficiaries when you set up your QROPS, which will simplify and speed up the process of paying your loved ones.
Disclaimer: The information given above are the result of personal readings of related genuine documents and personal understanding of the subject matter. This is written to make the beneficiaries understand, how importance to transfer pension fund to a QROPS . However, this blog is not responsible for any error or inaccuracy in the same.
For More details & assistance in transferring Pension fund from UK to India, Do mail/call me
Anusuya .R
Financial Advisor
SBI Life Insurance Company Ltd, # 23, Yamuna Complex,
1st Floor, 7th Cross, Malleswaram,
Bangalore: 560003.
