QROPS – Qualifying Recognised Overseas Pension Schemes

The following outlines the current options and opportunities for people resident outside the UK but who have accumulated UK pension funds or those currently resident in the UK but who will become non-resident of the UK. 

Highlights
  • Ability for non-UK residents to transfer pension funds accumulated in the UK offshore to a QROP Scheme
  • Greater flexibility and investment/currency choice
  • Potential tax benefits

Her Majesty's Revenue and Customs (HMRC) permit UK pension rights to be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS). The QROPS must behave in effect as if it were a UK scheme for those QROPS members who have been resident in the UK at any time in the previous five tax years. The key attraction of transferring UK pension rights to a QROPS lies in the fact that for those who are currently in the position of having been non UK resident for at least five complete tax years (or when they satisfy that condition) this requirement falls away.
After that time the pension fund becomes subject to the laws of the jurisdiction where the QROPS is located  – and for example the UK requirement  to purchase an annuity by age 75 (or be faced with the prospect of a possible  82% tax charge) no longer applies. This is possibly the most important reason to investigate QROPS as it means you can pass on the benefits of your pension to your beneficiaries and avoid Inheritance Tax as well.

As a result, some have used the structure of a QROPS to access pension funds for purposes other than retirement income. Generally pension provision should remain for exactly that but in some circumstances the concept of “fund release” is possible and appropriate.

A wide range of investments are possible within a QROPS  - and the possibilities become more or less unlimited once the QROPS member has been non resident for five complete tax years or more. Unlike a UK pension (post April 2006), there is no limit to the size of funds that may be accumulated within a QROPS.

Effecting a transfer into a QROPS is relatively straight forward. Most transfers from UK pension schemes will be paid to the QROPS in the form of a monetary transfer, although in other instances it may be possible to transfer existing scheme assets e.g. shares or investment funds. Benefits can usually be taken from as early as age 50 or sooner in some instances - and with no particular limits on the amount of pension that may be taken. There is no obligation to buy an annuity from a life office and the amount of “income” required may be drawn from the fund.

Following the death of a QROPS member any remaining fund may be subject to the discretionary disposal of the scheme trustees in accordance with the provisions of the scheme rules.  This will generally result in a disposal in lump sum to the family or other beneficiaries nominated by the scheme member.

The range of suitable QROPS allowing greatest flexibility is increasing on a regular basis. Schemes have been launched in the Isle of Man, Guernsey, Cyprus, Malta, Hong Kong, Singapore, and Eire.  Above all great care must be taken to ensure that the investor protection principles associated with the QROPS jurisdiction are robust.  Some schemes have an artificial nature to them which risks their QROPS status and in fact one or more Singapore schemes may have had their QROPS status suspended or revoked in 2008.

Each scheme and jurisdiction has its own particular characteristics, for example in the Isle of Man, tax at 18% is deducted from income payments at source and it may or may not be possible to reclaim this.  New Zealand funds suffer tax on the investment growth in the fund.  The currently favoured jurisdiction is one where there is no tax deducted at source on benefits, and for those who remain UK domicile the IHT consequences following death may be advantageous.

If you have a UK pension fund and would like flexibility within the fund for a wide range of investments such as property purchase, a Euro or US Dollar denominated portfolio, creating income early in retirement, passing assets to family members/beneficiaries, avoiding annuities and/or maximizing tax benefits on death, then QROPS may offer suitable solution.

Independent Pension Advice

Pegasus Financial Advisers offer expert independent pension advice relating to QROPS and other flexible offshore investment funds.  Please contact Pegasus Financial Services to discuss your options in relation to your personal objectives and circumstances.