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What is a QROPS?
Qualifying Recognised
Overseas Pension Scheme
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.
It is important to understand the processes involved in a QROPS transfer and to seek qualified financial advice before going ahead with a pension transfer:
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. 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.
- Read more about transferring your UK pension to a QROPS when living in France.
- Read more about transferring your UK pension to a QROPS when living in Spain.
- Read more about transferring your UK pension to a QROPS when living in Portugal.
QROPS France
Expatriates' use of QROPS in France has provided flexible retirement planning arrangements.
Learn more
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QROPS Spain
Qualifying Recognised Overseas Pension Schemes (QROPS) allow British expatriates or foreign nationals who have worked in Britain for a period to transfer their UK pensions overseas.
Learn more
QROPS Portugal
Retired British expatriates can’t transfer their UK pensions to a QROPS in Portugal as there are no local providers on the HM Revenue and Customs (HMRC)....
Learn more
QROPS rules & regulations:
What makes a scheme aQROPS?
As in every process, there are rules and regulations to ensure that a UK pension 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:
- 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
01
What is a QROPS pension transfer?
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 attractive 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.
02
Who is eligible for a pension transfer?
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.
03
What is a QROPS pension transfer?
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 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 prove that they have left the UK or plan to do so within the next 12 months. A property lease or formal offer of employment will suffice.
04
UK pensions eligible for transfer to a QROPS
You can transfer the following recognised pensions:
- Personal Pensions
- Final Salary Pensions
- Money Purchase Schemes
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.
05
Who is not eligible for a QROPS?
Making a pension transfer to a QROPS is not always a viable option. For example, 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 have not bought a lifetime annuity, you may still qualify for a QROPS.
- Any pension that has already made a distribution 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.
06
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.
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.
07
You can take benefits at age 55
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.
08
The ten year rule
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.
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.
09
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 must report it to HMRC. UK law takes precedence if the individual dies before 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 dies before the age of 75.
- However, if the individual dies within ten full and consecutive years of becoming a 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 can also receive the pension as a lump sum payment, subject to a tax charge of 45%.
What are the benefits of QROPS?
QROPS have many benefits; individual scheme features will affect your retirement planning differently.
The advantages available in terms of taxation and investment include:
- Lump-sum benefits
- No compulsory annuity purchase
- Reduction in currency risk
- More extensive range of investment options
- UK Inheritance Tax (IHT)
Lump-sum Benefits
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.
No Compulsory
Annuity Purchase
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.
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 your retirement fund and take income and 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 that 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 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 lump sum death benefit allowance (LSBDBA)
Following the abolition of the ‘lifetime allowance’ (LTA) a new allowance limits the aggregate lump sums that can be paid tax-free during the member’s lifetime and on death – the ‘lump sum and death benefit allowance’ (LSDBA).
QROPS Disadvantages:
Why they may not be suitable
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 annual trust fees which can be regarded as expensive and the overseas transfer charge as highlighted below:
The Overseas Transfer Charge on QROPS
The UK budget of Autumn 2024 extended the 25% overseas transfer charge on UK pensions to QROPS for EU/EEA tax residents.
However, there are exceptions for individuals living in the same country that the scheme is established in.
Lost benefits as a result of a pension transfer to a QROPS
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.
Conflict over the interpretation of QROPS legislation
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
ROPS list: Where are the schemes established?
QROPs has lost attractiveness. Consider SIPPs instead.
Read more hereA 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.
How do I know if it is a legitimate scheme?
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 updated list of ROPS notifications
The ‘Pension Schemes Services’ department usually updates the list regularly. 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.
QROPS Jurisdictions
Malta is a favoured QROPS jurisdiction in the European market
A limited number of 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.
Since 2009 Malta has established itself as the primary jurisdiction for QROPS providers. The local Maltese regulators work with HMRC to ensure compliance with rules and procedures.
Malta is now the place of choice for the transfer of UK pensions overseas. This is because Malta has an existing double-taxation agreement (DTA) framework. This framework consists of agreements with 59 other countries, including the UK and renowned EU retirement destinations.
It is essential to be aware of Malta QROPS rules regarding investment management. As of 1st January 2019, Malta QROPS providers must legally ensure financial advisers abide by MiFID 2 (Markets in Financial Instruments Directive) rules. Therefore, if you seek to transfer your UK pension into a Malta QROPS, you must check that the adviser has the necessary permissions.
Advisers must obtain an investment license to comply with the new MiFID regulations. They will also be held accountable for the sales of recommended funds to clients and expected to ensure that they suit their ‘risk profile’.
Financial advisers must also disclose fees and commissions on the QROPS application form. In addition, clients must agree to and sign a declaration stating they are fully aware of their plan’s total costs and charges.
Malta is now the place of choice for the transfer of UK pensions overseas. This is because Malta has an existing double-taxation agreement (DTA) framework. This framework consists of agreements with 59 other countries, including the UK and renowned EU retirement destinations.
It is essential to be aware of Malta QROPS rules regarding investment management. As of 1st January 2019, Malta QROPS providers must legally ensure financial advisers abide by MiFID 2 (Markets in Financial Instruments Directive) rules. Therefore, if you seek to transfer your UK pension into a Malta QROPS, you must check that the adviser has the necessary permissions.
Advisers must obtain an investment license to comply with the new MiFID regulations. They will also be held accountable for the sales of recommended funds to clients and expected to ensure that they suit their ‘risk profile’.
Financial advisers must also disclose fees and commissions on the QROPS application form. In addition, clients must agree to and sign a declaration stating they are fully aware of their plan’s total costs and charges.
QROPS Case Example
The European mobile professional
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.
QROPS Case Example
Silvia’s questions
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 funds are currently invested in pounds; can she change to Euro to reflect the currency she will eventually use in Malta more accurately?
- Can all four pension pots be consolidated into one?
- Silvia is married and has two children; what is the inheritance tax position?
- Silvia has noticed that the funds her pensions are invested in are middle-of-the-road performers, and there isn’t much choice other than those offered by the insurance companies. What are her options?
- As annuity rates are very low, is there a way to increase her potential income?
- Silvia knows she can take 25% of her funds in cash, free of UK tax. How would that be treated in Malta?
Using the ‘rule of 7’ for simplicity, whereby the principle doubles every seven years if increased by 10% compound interest per annum, it would only take about four years to reach her lifetime allowance (LTA) of £1,073,100. This could be relevant in relation to the new ‘lump sum and death benefit allowance’ (LSDBA).
Following the abolition of the LTA, a new allowance limits the aggregate lump sums that can be paid tax-free during the member’s lifetime and on death, the LSDBA. This means the maximum lump sum she can withdraw would be £268,275 (£1,073,100 X 25%). The 25% figure relates to the maximum tax-free cash that can be withdrawn from a UK pension.
Following the abolition of the LTA, a new allowance limits the aggregate lump sums that can be paid tax-free during the member’s lifetime and on death, the LSDBA. This means the maximum lump sum she can withdraw would be £268,275 (£1,073,100 X 25%). The 25% figure relates to the maximum tax-free cash that can be withdrawn from a UK pension.
The answers
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.
- Pension funds invested in a QROPS can be held in any freely convertible currency available globally. In Silvia’s case, she would opt for a Euro-based portfolio. This eliminates any current or future currency risk on her pension plan.
- One of the many benefits of such a vehicle is that it is possible to transfer all of your pension plans into one fund. So, Silvia can consolidate all four of her pensions into a QROPS.
- If she dies after she has achieved long term non-resident status, there will be no UK income or inheritance tax on the benefits paid to the beneficiaries, whether taken as a lump sum or income
- Another significant advantage of investing in this type of pension is the option of an ‘open architecture’ type of structure for the underlying investments. This means Silvia can invest in almost any investment fund available worldwide. This contrasts with her current situation, whereby she is restricted to only a few options for each pension.
- UK legislation was introduced in 2015 to provide flexible access options when withdrawing income from pension plans. Some conditions need to be met before flexibility is allowed; however, post-Brexit, it is now impossible for insurance companies to pay annuities. They also can’t transfer this type of pension into a flexible drawdown plan. Most QROPS allow flexible income withdrawal, so transferring the annuity-only plans enables Silvia to access her pension at the rate that suits her best. So, yes, Silvia can create a higher income stream. If we combine this point with potentially better investment management, the difference will be even greater as her pot will be larger.
- Malta QROPS allow up to 30% of a pension pot to be withdrawn in cash on pension commencement.
Finally, her adviser has more good news as Malta QROPS are not subject to lifetime allowance limits. As such, rather than being penalised for positive investment performance, Silvia will be rewarded as her pension can grow unrestricted, increasing her Pension Commencement Lump Sum and income.
The adviser’s job is to take care of all administration on Silvia’s QROPS case, provide the investment platform and tax advice and carefully look after her pension with future servicing.
The adviser’s job is to take care of all administration on Silvia’s QROPS case, provide the investment platform and tax advice and carefully look after her pension with future servicing.
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**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.
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