What is a QROPS? Qualified Recognised Overseas Pension Schemes enable British expatriates or foreign nationals who have worked in Britain to transfer their UK pensions overseas. A QROPS must be recognised by HMRC and meet UK tax legislation requirements.
A QROPS in France is an effective and efficient retirement solution which can provide flexible arrangements for your finances. It is essential to understand as much as possible about the processes involved before undertaking a QROPS pension transfer in France. The following are useful topics to help give you a clear insight:
- QROPS in France – what you need to know
- QROPS benefits when living in France
- QROPS rules and regulations
- Who is, and who is not eligible for a QROPS?
- The ROPS list of established schemes
- QROPS jurisdictions
1. QROPS in France: What you need to know
A Qualifying Recognised Overseas Pension Scheme (QROPS) is a vehicle that facilitates the transfer of existing UK pensions. Wherever your retirement destination, it is best if you can arrange your finances in the most flexible manner possible. The objective is to access your capital when you want, where you want, and in the currency of your choice.
It is essential to have a clear understanding of pension legislation in your chosen country of retirement. After that, you need to select an appropriate product that allows you to benefit from both a tax and investment perspective.
Expatriates in France can avoid the various restrictions imposed by the UK Government when taking retirement benefits. Existing UK pension legislation allows Expats to transfer their pensions to a Recognised Overseas Pension Scheme.
2. Benefits of a QROPS when living in France
QROPS offer a certain degree of flexibility when accessing benefits. The scheme features affect your retirement planning in different ways:
Individuals benefit from a tax-free commencement lump sum of 25% in the UK upon crystallisation of the pension. QROPS legislation also allows you to take up to 25% of your pension fund free from UK tax on retirement. In France, however, the lump-sum distribution would currently be taxed at 7.5%.
Provision of a retirement income
HM Revenue and Customs (HMRC) rules allow individuals to access 100% of their UK pension fund after age 55. However, it is not advisable to encash your pension in full, as this can result in higher taxes on withdrawals. It is often better to draw an income from the pension fund periodically in a tax-efficient manner.
No compulsory annuity purchase
Expatriates who opt for a pension transfer into a QROPS have no obligation to purchase an annuity. Individuals have the freedom to select funds that best suit their risk profile.
Reduction in currency risk
Retiring outside the UK on a sterling-based pension exposes your fund to unnecessary currency risk. QROPS solve this problem by allowing you to invest and take benefits in a currency of your choice.
More extensive range of investment options
Many pension providers restrict you to a limited range of funds. By contrast, a QROPS allows you to access funds managed by any of the leading investment groups. As a result, you can create a portfolio which more accurately reflects your circumstances.
UK inheritance tax (IHT)
Tax planning and pension planning go hand in hand. If you die while living abroad, assets held in a QROPS fall outside of your estate for UK IHT purposes. Unlike a UK annuity, the full value of your pension fund passes to loved ones upon death, protecting your wealth.
You should note that expatriates who own a QROPS in France, are subject to succession taxes upon death. It is essential to take professional advice on this matter.
QROPS and the lifetime allowance
The transfer of UK pension savings to an overseas pension scheme must not exceed the Lifetime Allowance (LTA). The LTA is a limit on the amount that an individual can accrue in a UK tax-privileged pension fund. The LTA is £1,073,100 at present.
When an individual transfers a pension from a UK registered scheme to a QROPS, there is a Benefit Crystallisation Event (BCE). If you take benefits in the form of a pension commencement lump sum or income withdrawal, HMRC will test the value of the savings crystallised against the available LTA. Should the value of the total UK pensions exceed that limit, an individual would be subject to a tax charge of up to 55% on any BCE upon retirement or death. For those who transfer their pensions to a QROPS while resident overseas, the LTA will no longer apply.
3. QROPS rules and regulations: What makes a scheme a QROPS?
As in every process, there are rules and regulations to make sure that a transfer to a QROPS functions correctly. The QROPS rules set by HMRC are consistent with UK rules. It is necessary to abide by these rules for the overseas pension scheme to be accepted by HMRC. The criteria outlined by HMRC for a foreign pension to qualify as a QROPS include:
- The pension scheme must be an overseas pension scheme
- It must register with the country’s tax authority as a pension scheme
- The local pension scheme state regulator should oversee the administration of the scheme
Removal of PERPS as French QROPS
In 2016, HMRC removed all French PERPS (Plan d’Epargne Retraite Populair) from the list of approved Recognised Overseas Pension Schemes. HMRC decided that they did not meet their requirements.
Current UK legislation allows scheme members to have access to their pension fund after the age of 55. In France, the statutory retirement age is 62 years. However, early withdrawals from pensions before the retirement age are possible in exceptional circumstances:
- Illness
- Death of the spouse
- Over-indebtedness
- The end of unemployment benefits
This anomaly highlighted the inconsistencies in the pension laws between the two countries and was the trigger for the delisting of schemes registered as French QROPS.
QROPS France: Transfers to overseas pension schemes
The QROPS regime must mirror that of a regulated pension scheme in the UK. Subsequently, a person who leaves the UK and takes their pension savings with them should be in a similar position as a person who remains in the UK with their pension savings.
QROPS France: reporting requirements
The rules on the transfer of pension funds from a UK registered pension scheme to an overseas pension scheme have now become more streamlined to simplify the administration process.
Full QROPS benefits are achievable after an individual has been out of the UK for ten consecutive UK tax years. You do not, however, have to wait for ten years before transferring to a QROPS if you are a recent emigre to France. It does mean though that certain aspects of UK tax legislation still apply for the first ten years. As such, the QROPS trustees will report any withdrawals to HMRC during this time.
By transferring to a QROPS in advance of retirement, the LTA clock stops as the transfer is considered a Benefit Crystallisation event. From that point onwards, any increase in the value of your QROPS will avoid the punitive withholding tax of 25% on withdrawals over £1,073,100.
The scheme manager does not have to notify HMRC if the payment is made ten or more years after the day of the transfer that created the Qualifying Recognised Overseas Pension Scheme for the ‘relevant member’, provided that the person is non-UK resident for the duration of this period.
Tax on QROPS at death
The previous UK tax charge of up to 55% on inherited pensions was replaced in 2015 by HMRC. Pension benefits pass to beneficiaries tax-free in certain circumstances. There are several scenarios to consider should an individual die while living abroad:
- If the QROPS trustees make a death payment within the 10-year reporting period, they are obliged to report it to HMRC. UK law takes precedence if the individual died before the age of 75 and within ten full and consecutive years of becoming a non-UK resident.
- After ten full years of non-UK residency, 100% of the remaining fund should be available to beneficiaries free of UK tax on the provision that the individual died before the age of 75.
- However, if the individual dies within ten full and consecutive years of becoming non-UK resident, while 75 years of age or over, under UK law beneficiaries would pay tax at their marginal rate on any drawdown from the pension. Heirs currently have the option of also receiving the pension as a lump sum payment, subject to a tax charge of 45%.
Local French legislation
It is necessary to keep an eye on the development of QROPS legislation. Changes in the law can affect the status of your QROPS in France. Under the Loi de Finances Rectificative pour 2011, Expats are required to declare the value of their pensions, including those assets held in a QROPS, to the French fiscal authorities.
4. QROPS France: who is eligible for a pension transfer?
If you wish to transfer your pension out of the UK, you must have already left the country for tax purposes, or be intending to leave shortly. Once tax resident in France, you can transfer your pension fund out of the UK into a QROPS in the same way that you would transfer between pension providers within the UK. Those eligible for such a pension transfer include:
- A UK national moving to France
- Any citizen who has built up UK pension benefits and is now resident or intending to become resident in France
Qualification for a UK pension transfer to a QROPS
To qualify for a QROPS, an individual should fulfil the following criteria:
- He/she must be between the ages of 18 and 75 years.
- Be either a British national who lives abroad, or an individual who has previously worked in the UK, and owns UK personal or corporate pension plans.
- Have a pension fund above £75,000 for this type of arrangement to be cost-effective. Some providers will allow individuals to top-up their fund to meet minimum transfer value requirements.
- Applicants for a QROPS need to provide evidence that they have left the UK or are planning to do so within the next 12 months. A property lease or formal offer of employment will suffice.
UK pensions eligible for transfer to a QROPS
You can transfer the following recognised pensions:
- Personal Pensions
- Final Salary Pensions
- Money Purchase Schemes
- Civil Service and Armed Forces
It is possible to transfer Guaranteed Minimum Pension (GMP) and protected rights to a QROPS. However, the member must consent in writing and acknowledge that the transfer is at their own risk.
Who is not eligible for a QROPS?
Making a pension transfer to a QROPS is not always a viable option. UK pension funds that are not eligible include:
- Any pension which has previously purchased an annuity. However, if you have already taken a lump-sum payment from your pension pot and not purchased a lifetime annuity, you may still qualify for a QROPS.
- Any pension that has already distributed a payment from a ‘final salary scheme’.
- UK State pensions.
**Note: Pensions may be subject to UK tax and scrutiny from HMRC for the first ten years of non-UK residency.
When not to use QROPS?
A transfer to an overseas pension may not be permissible even if it qualifies as having QROPS status by HMRC. Eligibility also depends on the scheme being able to accept a transfer under the legislation of the host state country.
There are other options for those who do not qualify for a transfer to a QROPS. The International SIPP is an alternative for those with smaller pensions or anyone retiring to a country outside Europe.
5. ROPS list: where are the schemes established?
A list of Recognised Overseas Pension Schemes (ROPS) is on the HMRC website. It consists of pension schemes that have informed HMRC that they meet the conditions to be a ROPS. 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.
How do I know if it is a legitimate scheme?
For a scheme to qualify as a QROPS, it must first of all be a Recognised Overseas Pension Scheme (ROPS). It must also provide benefits in respect of retirement, ill health, death or similar circumstances. If it meets these requirements, the scheme must take certain additional steps to qualify as a QROPS as defined by the legislation.
Not all pension transfers to overseas schemes qualify as being QROPS transfers. It is necessary to verify that the QROPS receiving your UK benefits is on the HMRC list. HMRC will treat a pension transfer to a scheme that is not on the ROPS List as a transfer to a non-qualifying overseas scheme and may impose substantial penalties.
This list consists of pension schemes that have informed HMRC that they meet the conditions to qualify as a ROPS. It is important to note that QROPS providers self-certify the list; HMRC don’t have an official approval system for ROPS. It is, therefore, the responsibility of the individual to find out if there is tax to pay on any transfer.
Updated list of ROPS notifications
The list is usually updated twice a month by the ‘Pension Schemes Services’ department. A QROPS will be removed from the list if it no longer qualifies for recognition. If there are concerns about its status, HMRC may opt to suspend the scheme and carry out further background checks.
As mentioned previously, there can be certain disadvantages in transferring to a QROPS, including the potential deregulation of the scheme. The UK Pension administrator will delist a scheme if it finds insufficient pension regulation in place in a given jurisdiction. They are under no obligation to make public their reasons for delisting a particular scheme. Members who are concerned about the removal of their QROPS from the published list should approach their scheme manager.
6. QROPS France: which jurisdictions are suitable
There are numerous territories which qualify as being suitable for the hosting of overseas pension schemes. It is important, however, to weigh up the pros and cons of each jurisdiction.
Malta is a favoured QROPS jurisdiction in the European market
Since 2009 Malta has established itself as the primary jurisdiction for QROPS provider. The local Maltese regulators work with HMRC to ensure compliance with rules and procedures. Malta has the advantage of being able to offer EU country-based schemes to the marketplace.
British Expats retiring to Europe should consider Malta as the jurisdiction of choice for the transfer of their UK pension. Malta has an existing double-taxation agreement (DTA) framework in place. This framework consists of agreements with 59 other countries, including the UK, and renown EU retirement destinations, such as France.
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**A professional financial adviser will help you determine if a QROPS pension transfer is appropriate for you.