Need Expert Financial Advice?
or Call Us at: +852 3728 0490
Introduction
As its name suggests, this is a form of pension based outside the UK which is recognised by the British authorities as being eligible to receive transfers from registered UK pension funds. Reputable advisers will only recommend transfers to countries which provide consumer protection equivalent or greater than the safeguards in the UK. People who are living inside or outside the UK can transfer their deferred company and personal pensions to a QROPS. Any pension can be transferred as long as an annuity has not been purchased or, if it’s a final salary scheme, that the pension has not commenced. Better still, where the pensioner has not been resident in the UK for five complete and consecutive fiscal years – and the tax rules determining residence will be examined in detail later in this guide – HMRC restrictions on how income and capital are spent no longer apply.
Things to consider
Who might benefit from considering a QROPS?
Anyone considering retiring overseas and becoming resident in a foreign jurisdiction or country for five years or more. The amount of tax you pay on income and capital received from your QROPS will be determined by the taxation of the country in which it is based and you are resident. These laws or fiscal statutes vary from country to country but many are more favourable to pensioners than those in the UK.
For example, pensioners resident in Cyprus can opt to pay a fixed flat rate of five per cent tax on all income above a small tax-free band or personal allowance; alternatively, they can choose to receive a higher personal allowance and pay higher rates of income tax on any income in excess of the allowance. The best option for you will depend on your personal circumstances and it makes sense to take professional advice which can take account of your individual needs and objectives.
Potential Benefits of QROPS:
– Lifetime Allowance: From 2016 the Lifetime Allowance will be 1m GBP – The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you, the current rate is:
55% if you get it as a lump sum
25% if you get it any other way, e.g. pension payments or cash withdrawals
– Income taxed in country of residence: There are many countries that have a lower income tax rate than the UK; as such it may be beneficial to move the money to the location with the lower taxation rates.
– Exchange rate risk: The rule of thumb for any financial advice is to have retirement income paid out in the currency expenditure is expected to be paid in. The majority of an individual’s expenditure will be in the currency of their country of residence. This means receiving an income in Sterling which then has to be converted each month can provide a huge risk with currency fluctuations making it very hard to plan from month to month.
– Benefit from Worldwide investment options A QROPS can access a huge range of investment funds across a multitude of differing currencies using fund platforms or offshore bonds. These can enable diversification and the opportunity to tailor an investment portfolio to an individual’s specific needs.
– Only 90% of the pension income from a QROPS is taxable (on a return to the UK): Pension income paid under a QROPS to a UK resident is classed as a Foreign Pension which is taxable in the UK on 90% of the amount arising, or, as relevant foreign income if the remittance basis is being claimed.
– Portability, flexibility: UK pensions are understandably structured around UK residents so for an expat who has no intention of returning to the UK they should always consider the benefits that a QROPS may bring.
Are QROPS suitable for everyone?
No. Most British pensioners retire as UK residents and so must pay UK tax. There is no statutory limit on the minimum value of pensions that can be transferred to a QROPS but only funds worth more than £100,000 are likely to generate sufficient tax savings to justify set-up costs, which vary between one per cent and five per cent of the fund transferred.
Why it makes sense to take specialist advice
Given the complexity and variety of different countries’ tax laws, this guide can only serve as a general introduction to the new opportunities created by QROPS. Specialist financial advisers, can answer questions specific to your individual circumstances. Remember that the fundamental purpose of a pension is to provide retirement income. So, it is vital to ensure that your money does not run out before you do – and to avoid taking unnecessary risks with your income or capital. For these reasons, it makes sense to consult fully-authorised, specialist advisers before making any decisions about QROPS.
Summary
Quite simply, a QROPS is a pension plan that; “Qualifies” with HM Revenue and Customs (HMRC) rules, is officially “Recognised” by HMRC, is “Overseas”, i.e. outside of the UK and is set up in trust as a legal “Pension Scheme”, hence the acronym. A QROPS therefore, can accept a UK pension transfer just like any UK based scheme. The benefits of transferring your fund into a QROPS include increased tax efficiency, flexibility, total investment freedom though they are typically more expensive than UK schemes.
Get Personalised Pension Advice
Additional Information Resources
Additional information resources are available by clicking on the links below:
You can also view information related to your particular stage of life: