The two most typical ways that expatriates manage their UK pension schemes are either by keeping their pension with a British provider or by transferring the funds into a QROPS.
A QROPS is a Qualifying Recognised Overseas Pension Scheme. It allows one to receive transfers from UK pension funds while still abiding by the HMRC’s rules. The HMRC requires a 10-year reporting schedule for those who transfer into a QROPS. Additionally, the funds may not be accessed until the individual is 55 years of age. (There are specific exceptions to this rule.)
Essentially, a QROPS makes it easier and more tax-efficient for expatriates to take their pension funds to their new country of residence.
Anyone who is between the ages of 18 and 75 and has lived outside of the UK for at least five fiscal years is eligible for a QROPS. It is not necessary to be a UK citizen to enjoy the benefits of a QROPS.
In order to benefit from an arrangement like this, the individual must have a pension fund of more than £30,000. Therefore, it is important to speak with an expert to determine whether this scheme is right for you. You may decide to stay with your provider if you have a UK pension scheme that provides great benefits and investment options.
An adviser will help you make the right decisions for your specific situation.
The benefits of a QROPS typically depend on what kind of scheme you are transferring from, the tax laws of the country the QROPS is being established in, and your place of residence at the time retirement benefits are paid.
Below is a summarised list of possible benefits of transferring to a QROPS.
- Passing your pension to your loved ones can be easier with a QROPS than it is a UK pension. The primary difference on death benefits is that if the member dies past the age of 75, the recipient of the UK fund will pay UK tax up to 45% of the fund. This doesn’t apply to a QROPS 5 years after the date of the transfer.
- QROPS schemes allow for a tax-free lump sum of up to 25%. This 25% avoids UK taxes.
- UK pension schemes are often restrictive, and many do not offer a wide choice of investing opportunities. A QROPS provides more choices for investors. It is possible to invest in almost any funds and shares that you so choose from across the global market.
- The UK imposes higher taxes on income, including pension income, than many other countries. Therefore, depending on what country you live in, the income you receive from your retirement fund may be taxed at a much lower rate if you are to transfer your British pension into a QROPS. For example, a Spanish resident would pay Spanish tax instead of UK tax.
- A UK-based pension will always pay in sterling no matter where you live. This makes the process of transferring the funds into your country’s currency more difficult as you are subject to the current exchange rate. Additionally, if you use a UK pension to invest in international funds, there are added costs because of the currency conversion. A QROPS provides more currency freedom. It allows you to use most major currencies to both invest and pay out in. It also helps reduce the effects that fluctuations of exchange rates have on your funds. This makes it so that you do not need to time your transfers to get the best possible rate.
- With UK pensions, charges are often convoluted. These charges are more straightforward with a QROPS. Your adviser can outline all of them so that you understand exactly where your money is going.
- Many people acquire multiple pensions throughout their lifetimes, making it difficult to keep track of and manage them. You can consolidate all your British pensions into a QROPS to ensure that they are accessible in the simplest way. This also makes it so that you have one provider, and therefore only one point of contact for all of your funds.
- If your UK pension exceeds the lifetime allowance, you could face additional tax charges. If you transfer into a QROPS before exceeding this amount, there will be no lifetime allowance charges even if you ultimately surpass the threshold.
Depending on your particular circumstances, a QROPS can offer more ease and flexibility with your money all while being tax efficient.
Is a QROPS right for you?
As with any other pension scheme, a QROPS is not a one-size-fits-all solution. For example, if you have a defined benefit scheme, you may want to discuss with one of our Wealth Managers if a QROPS is a suitable option for you.
QROPS scams and poor advice run rampant. Therefore, it is imperative to speak with a professional before transferring your funds.
If you would like to learn more about how a QROPS would specifically benefit you, get in touch with us today.