A QROPS is an HMRC-recognised pension scheme that allows British expatriates or foreign nationals who have worked in Britain for some time to transfer their UK pensions overseas. The pension scheme must meet requirements set by UK tax law and mirror that of regulated pension schemes in the UK.
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QROPS were introduced in 2006 as part of a major overhaul of Britain’s pension framework, aimed at simplifying pension transfers to another country. HM Revenue and Customs (HMRC), the UK tax authority, passed legislation to comply with an EU directive for pensions to be free to move across Europe’s borders.
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As in every process, there are rules and regulations to ensure that the transfer 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:
Your pension savings, whether from one UK pension or several pensions, are transferred into an overseas pension scheme. However, it should be noted that recent UK pension transfer regulation has resulted in qrops transfers only being permitted if the scheme is established in your country of residence. You need to seek professional advice on this matter.
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 someone who remains in the UK with their pension savings.
If you wish to transfer your pension from the UK, you must have already left the country for tax purposes or intend to go shortly. Once a tax resident in an EU country with an established Recognised Overseas Pension Scheme, you can transfer your pension fund from the UK as you would between pension providers within the UK.
To qualify for a QROPS, an individual should fulfil the following criteria:
You can transfer the following recognised pensions:
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.
Making a pension transfer to a QROPS is not always a viable option. For example, UK pension funds that are not eligible include:
**Note: Pensions may be subject to UK tax and scrutiny from HMRC for the first ten years of non-UK residency.
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.
Other options exist for those who do not qualify for a transfer to a QROPS. The International SIPP is an alternative; it is also suitable for anyone retiring to a country outside Europe.
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. Instead, it is often better to draw an income from the pension fund periodically in a tax-efficient manner.
The rules on transferring 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. If you are a recent emigre, you do not have to wait for ten years before transferring to a QROPS. However, 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.
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:
QROPS have many benefits; individual scheme features will affect your retirement planning differently.
The advantages available in terms of taxation and investment include:
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. You should check with a financial adviser to confirm if a lump-sum distribution is taxed in your country of residence.
Expatriates who transfer their pensions into a QROPS have no obligation to purchase an annuity. Individuals have the freedom to select funds that best suit their risk profile.
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 your retirement fund and take income and benefits in a currency of your choice.
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 that more accurately reflects your circumstances.
Tax planning and pension planning go hand in hand. If you die while living abroad, assets held in a QROPS fall outside 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.
The transfer of UK pension savings to an overseas pension scheme must not exceed the Lifetime Allowance (LTA). The LTA limits the amount an individual can accrue in a UK tax-privileged pension fund. The LTA is £1,073,100 at present.
The transfer of UK pension savings to 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. The LTA will no longer apply to those who transfer their pensions to a QROPS while resident overseas.
There are also some disadvantages associated with pension transfers to overseas schemes. Identifying the advantages and disadvantages as part of the decision-making process is always necessary. Suitability depends on residency, how long it has been since you left the UK, your current pension benefits, your ability to survive on your pension income in a given country, the eligibility of your pension scheme for transfer overseas, etc. QROPS disadvantages may include the following:
The most significant impact will be on people moving to countries outside the EEA. If the person moves to a country outside the EEA, then the QROPS provider must also be based in that country, or a 25% tax charge will apply. This may create an issue as not all jurisdictions will have a QROPS provider that meets the qualifying criteria for HMRC.
The UK budget of Autumn 2024 delivered a new 25% tax on the overseas transfer of UK pensions; this includes transfers to QROPS. There are exceptions for individuals living in the same country that the scheme is established in.
Many defined benefit/final salary pension schemes offer guaranteed minimum pensions and cost-of-living adjustments that link to an inflation index. These benefits are built into the final salary scheme. However, they are not transferable to a QROPS; only the actual value of the retirement fund is. You cannot replicate these benefits following a pension transfer, so they are forfeited.
Many QROPS providers set up an office in a European jurisdiction and are subject to EU pension regulation; Malta is a prime example. However, QROPS that establish a base outside the Eurozone do not have to comply with EU regulations.While schemes recognised by HM Revenue and Customs are obliged to offer specific minimum requirements and benefits, those operating in certain foreign jurisdictions may have rules and regulations inconsistent with those of HMRC
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 where a double-taxation agreement (DTA) framework exists.
For a scheme to qualify as a QROPS, it must first be a Recognised Overseas Pension Scheme (ROPS). It must also provide benefits regarding retirement, ill health, death, or similar circumstances. If it meets these requirements, the scheme must take additional steps to qualify as a QROPS as defined by the legislation.
Not all pension transfers to overseas schemes qualify as QROPS transfers. Therefore, 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 not on the ROPS List as a transfer to a non-qualifying overseas pension 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 doesn’t have an official approval system for ROPS. Therefore, the individual must determine if there is tax to pay on any transfer.
The ‘Pension Schemes Services’ department usually updates the list twice a month. A QROPS will be removed from the list if it no longer qualifies for recognition. If there are concerns about its status, HMRC may suspend the scheme and conduct 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 QROPS if it finds insufficient pension regulation in a given jurisdiction. They are not obligated to make their reasons for delisting a particular scheme public. Members who are concerned about the removal of their QROPS from the published list should approach their scheme manager.
Numerous territories qualify as being suitable for the hosting of overseas pension schemes.
It is essential, however, to weigh up the pros and cons of each jurisdiction.
Silvia is a European national who has worked in the UK for 20 years as an international lawyer. She is 63 years old and has decided to retire to Malta; she is aware that she can transfer her UK pension there. She has four pension pots from four different insurance companies, all of which are defined contribution schemes.
Defined contribution means her pension entitlements are based on contributions from herself and her employer. These contributions are currently invested. Two of her schemes only allow benefits to be withdrawn as an annuity. Insurance company specialists who calculate annuity rates work out Silvia’s expected lifespan, then apply a percentage rate to the pot from which she can withdraw income. So, in the case of a 63-year-old, for example, this rate would be around 4% per annum.
Silvia has around £700,000 in her UK pensions.
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 where a double-taxation agreement (DTA) framework exists.
The answers to Silvia’s case are below. However, you should note that behind most simple solutions is a plethora of technicalities that must be addressed and resolved.
The survivor may nominate who they wish to receive any remaining funds, whether taken as a lump sum or income, to be paid in the event of their subsequent death. However, the arguments favouring a pension transfer to a QROPS are more convincing in the event of death after age 75.
**Please note that it is essential to speak with a professional financial adviser who will review your situation and determine if a QROPS pension transfer is appropriate for you.