Expat guide: What are QROPS?

QROPS are schemes to allow UK expats to transfer their pensions abroad.

As a British expatriate you have probably heard of QROPS, particularly if you are retired or nearing retirement. QROPS stands for Qualifying Recognised Overseas Pension Schemes. They act as a vehicle into which, UK pensions (private or company) can be transferred.

QROPS are available in many tax jurisdictions around the world. There is a list of recognised schemes on the HMRC (Her Majesty’s Revenue and Customs) website. However, being on this list does not mean the scheme has been approved by HMRC, there is no official approval process.

An extract from HMRC’s website – “Publication on the list should not be seen as confirmation by HMRC that it has verified all the information supplied by the scheme in its application.”

Any pension can be transferred to a QROPS providing the UK pension has not been used to buy an annuity.

Who can have a QROPS?

QROPS are only suitable for people moving to jurisdictions with a lower pension tax than the UK. To check tax rates where you are moving to it is best to seek the advice of a local tax advisor as UK based ones may not be well versed in tax practices in other countries.

QROPS work best for people who are non-resident for Uk tax purposes and who plan to live abroad permanently or for a minimum of five years.

Are there risks with a QROPS?

As with all things financial it is best to seek the advice of an expert before you transfer your pension, this should limit any problems. Make sure you use a registered financial advisor as some unscrupulous ones take a very large commission when transferring your money. The rate should be between 1-5% of the funds transferred.

The flexibility of QROPS and the ability to take out large tax-free lumps seems means you could run the risk of your money running out.

What are the benefits of QROPS?

Pensions in the UK are taxed at the same rate as income. So if you plan on retiring to a country with a low tax rate you can transfer your pension and potentially enjoy more of your retirement income.

With QROPS there is no requirement to buy an annuity at age 75. Therefore, you can leave any residue in your fund to your beneficiaries after you die, inheritance tax free. There is also greater freedom to invest; you can take tax-free lump sums out of your pension and many QROPS have the features of an offshore portfolio bond.

Transferring your pension abroad used to mean you were liable to pay transfer tax, with QROPS you don’t have to pay tax to transfer your pension. Depending on the jurisdiction, taking money out of your pension can also be tax free.

A QROPS pension can be held in many different currencies. Therefore you can deposit money into it in the local currency and not worry about exchange rates.