NOTE: There are new considerations for anyone thinking about transferring their pension into a QROPS scheme following the 2017 Spring Budget.  Please speak to one of our advisors to discuss the new changes and how this may affect you.  

Further updated information will be available here soon, in the meantime you can find out more from HMRC HERE.

What is a QROPS?

Since their introduction in 2006, the popularity of QROPS, HMRC recognised overseas pension schemes continues to grow amongst expatriates and individuals who have worked in the UK. QROPS allow you to transfer your UK accrued pension into another jurisdiction. This does not have to be to the country in which you are resident, so you are able to choose a QROPS in a jurisdiction that provides tax advantages as well as consumer protection and safeguards. These schemes are largely comparable to UK schemes, but are not burdened with the restrictions of a UK scheme or the lifetime allowance. Although not suitable for everyone, it is well worth exploring this opportunity to maximise your existing assets.

Potential benefits of a QROPS

No Lifetime Allowance

In April 2016, the life time allowance was reduced from £1.25 million to £1m. Life time allowances have been reducing year on year and we don’t see this trend changing. Currently once your lifetime allowance is exceeded the excess is taxed at 55% if taken as a lump sum or 25% if taken as income. There would also be income tax applied. With a QROPS, your pension will be tested against the relevant lifetime allowance at the time of the transfer. After this, your pension is able to grow tax-free as the UK lifetime allowance no longer applies.

Pensions that are currently worth well below the lifetime allowance, after several years of growth can exceed the LTA. For example a £700k pension growing at 4% annually will be worth £1,036,171 in ten years time.

Why not only transfer to a QROPS when the value of the pension is just below the LTA (e.g. £999k)?

If you did this, you would have used up almost all of your lifetime allowance. If you moved it when your pot was £500k, if you ever went back to work in the UK, you would still have £500k scope to build up a pension without being subject to the extra tax.

30% Lump Sum Tax Free

Receive a potentially tax-free lump sum of up to 30% of your pension pot. This is only applicable to individuals who have been resident outside the UK for greater than 5 years. In the UK, this would be at most 25% (less if you have exceeded your lifetime allowance). 

On return to the UK

If you do return to live in the UK only 90% of a QROP is taxable as it is classed as a foreign pension or if the remittance basis is being claimed, foreign income. However, the government often changes legislation and from April 2017 a foreign pension will be taxed in full in the hands of a UK resident member, instead of 90% of the payment being taxable.

Maximising a Spouses Pension

With a final salary scheme after a member's death, the spouse is often left receiving an income of only 50% of the members pension.
A QROPS makes it possible to use up to 100% of the fund to provide a spouses pension through an income drawdown or annuity agreement.

Offshore Investment Options

Don’t be constrained to UK investments, capture the global market and diversify your currency risk by holding investment in all major currencies.

No Death Tax

Currently if you pass away after 75 your spouse will be subjected to up to 45% tax on your pension. There is however no death tax on a QROP. 

Protection from Future Changes to UK Pension Legislation

For example, further reductions in the lifetime allowance.

Enables you to Consolidate Several Pensions into one

Provides administrative simplicity and easier investment management.

May save you paying multiple administrative costs.

As would a Self-Invested Personal Pension (SIPP).

How does a transfer work?

-Initial consultation on your financial needs, situation and goals.

-Should a transfer to a QROPS be an option you wish to consider, the adviser will explain QROPS and the transfer process to you. With your authorisation, the adviser will write to your UK pension provider(s) to request information on your pension(s) such as the transfer value and details of the benefits.

-The adviser will produce a recommendation report, outlining the costs and benefits of a transfer, concluding with their recommended course of action. We will ensure the 'Appropriate Independent Advice' requirements set out by the Financial Conduct Authority are met.

-Investment opportunities will be discussed. A full attitude to risk profile will be taken. An external asset manager (e.g. bank) is also possible.

-Should you wish to proceed with a transfer, the adviser will complete the necessary paperwork with you and start the process, keeping you updated along the way.

Tell me more about QROPS