By Des Cooney
What is a QROPS? – Qualifying Recognised Overseas Pension Scheme
We all know how important it is to plan our retirement in the best way possible. Recent developments in UK pension legislation allow expatriates to do just that in the form of Qualifying Recognised Overseas Pension Schemes, otherwise known as QROPS. This strange sounding acronym offers an efficient and effective solution for British expatriates, or foreign nationals who have worked in Britain for a period, to transfer their UK pensions overseas.
This section looks in greater detail at the origin of QROPS and the processes involved in the transfer of UK pensions overseas. Topics include the following:
- Definition of a Qualifying Recognised Overseas Pension Scheme
- The disadvantages of using QROPS
- The approved list of established schemes
1. QROPS definition
QROPS were introduced in 2006 as part of a major overhaul of Britain’s pension framework, aimed at simplifying pension transfers to another country. New legislation was passed by the UK tax authority, HM Revenue and Customs (HMRC), in order to comply with an EU directive that pensions be free to move across Europe’s borders. This ruling means that individuals, wishing to retire to countries such as France and Spain, can effectively take their UK pension funds with them.
2. What are the disadvantages of QROPS?
A QROPS is specifically designed to allow anyone, not intending to retire in the UK, to transfer existing and frozen UK pension plans into a more appropriate retirement vehicle. Individuals who are, or have been members of a UK registered pension fund and are currently living outside of the UK, or intending to leave the UK on a permanent basis, can consider transferring their retirement fund into an overseas pension scheme.
One advantage of such a scheme is that it can be established in one country with the member living / retiring to a second country. This choice may allow the pension fund to grow in a country with a favourable tax structure.
There also a number of disadvantages associated with transfers to overseas pension schemes. Rash decision-making may lead to lost benefits or even penalties imposed by HMRC.
3. Where are the schemes established?
A list of Recognised Overseas Pension Schemes (ROPS) can be found on the HMRC website. The list consists of pension schemes that have informed HMRC that they meet the conditions to be a ROPS and have asked to be included on the list. There are now over 900 QROPS to choose from across 41 different jurisdictions. European-based expats seeking to move their UK pensions overseas are encouraged to seek out EU jurisdictions for their schemes; jurisdictions where a double-taxation agreement (DTA) framework exists.
Malta was at this time regarded as an attractive proposition for the industry. It currently has 59 DTA’s with other countries including EU member states such as the UK, France, Portugal and Spain. It has been proactive in the development of the QROPS market with the installation of local regulators to work with HMRC in order to ensure that all rules and procedures are adhered to.
There are numerous territories which are recognised as being suitable for the hosting of overseas pension schemes. It is important however to weigh up the pro’s and con’s of each jurisdiction. In order to be sure that you make the correct decision on this matter, you should consult a professional adviser.