The history of QROPS (Qualifying Recognised Overseas Pensions Schemes) dates back to 6th April 2006, when following the 2004 UK Finance Act, new pension legislation came into force with the objective of simplifying pensions, these were dubbed the ‘A-Day’ reforms. The legislation which made QROPS possible however, ultimately came about as a result of an EU Directive which governs the freedom of movement of goods, services, people and – where pensions are concerned – capital.
Contrary to popular belief then, QROPS were not some tax loop hole or other form of generosity from HMRC, but the result of an EU Directive. Some common questions are answered below, however a word of caution – The transfer of an individuals accumulated pension benefits is a complex area and it is imperative that you seek professional advice from a UK qualified Financial Adviser before proceeding.
This will depend on a number of factors including what type of scheme or schemes you hold. There are now QROPS at the small end of the market that can cater for pots of £25,000 or higher, and at the other end of the market there are schemes that are more suited to larger funds of £100,000 –£1,000,000 and beyond.
It could cost more or less than you are currently paying to your current pension provider. As these benefits are simply HMRC rule changes these benefits are not subject to a direct fee. The fees are simply related to the type of investments you hold and which QROPS provider you use. Your Financial Adviser will identify the most suitable scheme for your needs. Schemes start from as little as £300 set up fee and a further annual fee of £300, typically for schemes below £100,000, and around £850 per annum for transfers of benefits over £100,000.
Yes, the process is simply a case of having your current pension administrator transfer the assets to a QROPS provider of your choice. QROPS are Qualified and Recognised by HMRC and your Financial Adviser will be able to provide you with a certificate from HMRC confirming their approval of the scheme. A full list of approved QROPS can be found on HMRC´s website.
Many people make the mistake of transferring to a QROPS prematurely. The reality is that although QROPS are now very competitively priced , the price of a SIPP is still at the very lowest end of the scale with typical set up fees typically less than 50% of their QROPS counterparts. On a large pension pot the difference of a few hundred pounds per year in trustee fees might not make much difference but certainly for funds below £100k, every last saving that can be made on running costs is going to mean more growth or income for your fund.
Following pension legislation changes in the UK, SIPPs now offer more benefits than ever before and the difference in perceived benefits between a SIPP and a QROPS is tighter. For example the death benefits before reaching age 75 are now identical and the fund can be passed to your beneficiary tax free. It is on death after age 75 that there still exists a difference; funds held in a SIPP will be taxed at your beneficiary’s marginal rate if passed on as a lump sum, where as in a QROPS the entire fund can still be passed on tax free.
For those individuals who have been living outside of the UK for 5 complete tax years, there is also the possibility to access up to 30% as a tax free lump sum in certain QROPS jurisdictions, where as within a SIPP this will always be limited to a maximum of 25%. Please note however, that caution needs to be taken here, as although any lump sum may not be taxable in the UK (SIPP) or in the jurisdiction the QROPS is held, it may still be taxable in your country of residence.
For larger pension pots that look set to breach, or have already breached the lifetime allowance, a transfer to QROPS will make most sense as once the funds are in a QROPS they will not be subject to a further lifetime allowance test. Please click here to read a case study of this scenario.
Finally, there are also certain investments that are not permitted in a SIPP that can be accessed in a QROPS. However much of these relate to complex and/or non-regulated investments and would therefore be unsuitable for the majority individuals anyway.
Choosing the right jurisdiction is not a straightforward process and it will be dependent on where you are living and also perhaps where you might find yourself living in the future. Taxation will be a key issue here and it will be important to ensure there are Double Taxation Agreements in place or income can be paid gross or with minimal tax. Some leading providers now have schemes in all the major jurisdictions and will allow clients to switch freely between them if their circumstances change which can be a really useful feature for those with uncertainty as to where they will remain in the long-term. This is clearly a complex area and simply illustrates the need for each individual to receive impartial independent advice. Our free report will explain to you which solution suits you best and why.
Some of the Qrops benefits include:-
Phil, 65, and Sue, 61, are both retired and have been living in Spain for 7 years now. Phil has two occupational pensions; one is a final salary (Defined Benefits) scheme with Royal Mail and the other is a money purchase (Defined Contribution) scheme from his earlier years working for a logistics company. In addition to the pensions he has from his previous employers, Phil also has a private pension scheme that he took out with Friends Provident. Phil had read lots of news and opinion on QROPS, SIPPS and even QNUPS and was confused as to what the best route would be for him.
After a completing a review of Phil’s pensions, including a Transfer Value Analysis (TVAS) of his final salary scheme, our pension transfer specialists advised Phil that the guaranteed benefits received from his Royal Mail pension should be retained, as it would be difficult to match these in the open market with the transfer value that was offered. However the two defined contribution schemes, valued at £65,000 and £120,000 respectively were consolidated into a single pension within a QROPS giving him a fund of £185,000.
After evaluating the pros and cons, Phil chose a QROPS over a SIPP. A key reason was that, because he had left the UK more than 5 years ago, he was able to access 30% as a pension commencement lump sum from a QROPS; in a SIPP this would have been limited to 25%. In addition, if Phil opted for a SIPP; if he were to die after age 75; Sue would have to pay tax on the value of the remaining funds; in a QROPS Sue would benefit from receiving the whole fund without being liable for tax, regardless of whether Phil dies before or after age 75.
As Phil and his wife Sue plan to remain in Spain he also wanted to convert the money to Euros to remove any future exchange rate risk. Upon completion of the transfers he managed to obtain a rate of 1.25 providing him with a fund of €231,250 (FX at time of writing).
The QROPS was set up using a trustee in Malta, as they have a double taxation agreement with Spain. This meant the trustees could pay Phil his income gross and he would only have to pay tax in Spain – removing any double taxation risk. Malta recently amended their pension legislation; this means Phil can enjoy the same flexible drawdown that is permitted in the UK (since 6th April 2015). Sue now has peace of mind as well, as if anything happens to Phil, she can receive the entire fund as a cash lump sum, irrespective of what age Phil dies.
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