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By Des Cooney
When considering an overseas pension transfer, it is important to note that not all pension funds are eligible to be treated as Qualifying Recognized Overseas Pension Schemes (QROPS). Indeed, there are circumstances when retiring to countries such as Spain, Portugal and France that a QROPS pension transfer is not a viable option.
Who is not eligible for QROPS?
UK pension funds that are not eligible for transfer include:
- Any pension which has previously been used to purchase an annuity. However, if you have already taken a lump-sum payment form you pension pot, but not purchased a lifetime annuity, you may still qualify for a QROPS.
- Any pension that has already taken payment from a ‘final salary scheme’.
- UK State pensions.
It should be noted that being in possession of a QROPS will not affect your entitlement to a UK state pension.
When not to use QROPS?
Transfers may not be permissible into an overseas pension scheme even though it has been recognised as having QROPS status by HMRC for UK tax purposes. Eligibility for transfer into a QROPS also depends on the scheme being able to accept a transfer under the legislation of the country in which it is established. In the case of the US, transfers to ‘qualified’ retirement plans, including individual retirement arrangements (IRAs), cannot be made as such plans are not permitted to accept a transfer of funds from a UK registered pension scheme. *
For those who do not qualify for a QROPS pension transfer, there are other options available, depending on the size of your pension, the country you wish . to retire in, and your tax and domicile status. The Self Invested Pension Plan (SIPP) is one of the more common investment alternatives for those who cannot take advantage of a QROPS.
Who qualifies for a QROPS pension transfer?
- Must be between the ages of 18 and 75 years.
- Have been living outside the UK for 5 consecutive fiscal years.
- British nationals who live abroad, or individuals who have previously worked in the UK, and are in possession of UK personal or corporate pension plans
- Have a pension fund in excess of £30,000 for this type of arrangement to be cost-effective. A number of providers will allow individuals top-up their fund in order 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 . This can take the form of a lease on a property or a formal offer of employment.
What UK pensions can be considered for QROPS?
The following recognised pensions can be transferred:
- Personal Pensions
- Final Salary Pensions
- Money Purchase Schemes
- Civil Service and Armed Forces
Guaranteed Minimum Pension (GMP) and protected rights can be transferred to a QROPS providing the member consents in writing and acknowledges that the transfer is made at their own risk
How popular are these schemes today?
After an initial slow start, these schemes have exploded in popularity. With the market for QROPS now in its eighth year, UK expats and workers with UK pensions can choose from over 900 available schemes. Latest figures show that more than 10,000 UK pension funds are being transferred into such schemes each year.