Qualifying Recognised Overseas Pension Scheme QROPS
Published / Last Updated on 27/10/2014
Video explains the basics of international pension transfers from a UK pension to an overseas QROPS Qualifying Recognised Overseas Pension Scheme.
Transcript:
“Hello again. Subject for the video today is QROPS. QROPS: qualifying recognised overseas pension scheme, a QROPS. [So] qualifying recognised overseas pension scheme: international pension scheme.
In very simplistic terms: you may have built up pension rights in the United Kingdom, you may have worked in the United Kingdom, you may be a foreign national, having worked in United Kingdom and then returned to your homeland ; whether that’s Europe, United States, Australia or wherever it might be. The alternative is you are a British national that is now living or working overseas and you're no longer in the country.
Now what HMRC introduced via statute, was the ability to transfer your pension rights overseas to an approved pension scheme in the country that you are living or indeed another international pension scheme. So QROPS fall into basically two categories:
- The first category is pension schemes that have been approved in the country that you live in. for example: you’re a US national and you've moved back to the US then maybe US 401(k)’s or US IRAs that have been approved by the UK HMRC, Her Majesty's Revenue and Customs, to transfer UK pension rights to an approved pension scheme in the United States or likewise the same in Australia or New Zealand or wherever it might be. [Where] in Australia for example, we have the ‘super’ schemes, superannuation. “Supers! Everybody’s got a super”. So, you’ve built UK pension rights, you have moved back home or if you are a British national you’ve moved to the States, Australia, New Zealand, France, Germany, Spain, Italy, wherever it might be. You can transfer your UK pension rights to an approved pension scheme in the country that you live in.
HMRC produces, online, an approved list of all of the schemes that are approved in the US or Australia or wherever. So your pension rights that you’ve built up in the UK aren't necessarily dead and buried and you have to leave them in the UK you can transfer them overseas.
- Alternatively, there are, let’s just call them offshore jurisdictions, the likes of the Isle of Man, Gibraltar even Malta they all offer approved QROPS schemes. So it may be that you've retired or you live in Spain and you wish to transfer your pension, your UK pension, to an approved Malta pension scheme or Gibraltarian pension scheme.
So those are your options. Now it used to be very popular to move UK pension rights to particularly the offshore jurisdictions, to move your pension scheme offshore, when you’ve moved overseas because of the death benefits. In very simplistic terms, in the UK your pension rights were:
- you can have a 25% lump sum from your pension fund, just because that's tax free in the UK doesn't mean it's tax-free where you live but 25% as a lump sum and
- the balance, to provide you with an income whether that income is the in the form of an annuity or whether that income is in the form of a drawdown scheme, drawing down pensions from pension income, from the fund.
Now on death, let say for drawdown in a UK pension scheme, there was a tax charge of 55%. So a lot of expats moved their pension schemes offshore and indeed still continue to think about doing that, because if they've moved it let's say to Malta to an approved scheme there; then you don't get caught by that 55% tax charge on death if you're using some form of drawdown.
Now things have moved on. I’m shooting this video now, it's late October 2014 and already we've seen a lot coming out of government where they're improving flexibility for UK pensions. Making it more flexible to drawdown, pretty much anybody can drawdown a pension fund. Then likewise a couple of weeks ago announcements were made where the death benefits are going to be much more beneficial. Where, it isn't: ‘on my death I leave it to my legal spouse: my wife, husband or my civil partner’ and they have choices. But if they wanted to withdraw the whole fund, there was that 55% tax charge. Well, that is normal now, starting to disappear.
Now it’s not law yet but broadly speaking the proposals are:
- you can leave your pension fund to loved ones and they don't necessarily have to pay tax
- now there are certain circumstances where they will have to pay tax over the over the age of 75 if you’ve died after your were 75
But what I’m really saying here is that the principal reason for moving a pension scheme let's say to the Isle of Man or to Gibraltar or to Malta was to avoid the death tax charge.
Now that fundamentally is disappearing, so I see the QROPS market shrinking slightly if you are moving your QROPS as an expat for that, but not forgetting even if, you know? So that there is still the options to do it, there are still the options to internationally transfer your pension to Australia, to the United States, to Gibraltar; to any approved pension scheme throughout the world that has been approved by HMRC.
[But] that was just a very brief introduction to what QROPS is, a qualifying recognised overseas pension scheme. There are many approved pension schemes across the globe, you still have the option to transfer your pension overseas provided it's an approved scheme but likewise now, some of those arguments from moving because of the death tax charge those are starting to diminish now given the proposals for flexibility for pensions in life but also on death.
It’s quite a complex subject, it’s something that you shouldn’t take lightly in terms of transferring overseas because the UK financial services compensation scheme and indeed the pension protection fund are quite robust. So, I’m not going to be detrimental to other states, whether it's the Isle of Man Gibraltar or Malta or whatever but part of it is: never forget that when you do transfer your pension rights overseas their investor compensation schemes may not be as robust as the UK. They may be and you may trust to move your pension funds to those jurisdictions but I suggest that you need to take professional advice before you transfer your pensions from United Kingdom to an international QROPS scheme:
- If you moving to, you know? The usual suspects the United States, Australia, New Zealand etc, South Africa where there are a lot of English-speaking nationals working between US and UK, Australian, US etc.
- But if you're a British expat and you’ve retired to Spain, to Cyprus, to France, wherever and you're looking at well maybe I’ll go to one of these other types of scheme in an offshore territory think about it first take professional advice.
So that’s an introduction to QROPS. Thanks very much for watching.”
