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QROPS Advice and Service for British Expats

QROPS – EVERYTHING YOU NEED TO KNOW

The purpose of this page is to present you with everything you should need to know about QROPS. As a very complex part of retirement planning we recommend you get in touch with us for independent advice on your situation and do not base a decision solely on what you read online.

Over the years there has been a lot of misselling and bad advice given on UK pension transfers often in the interest of remunerating non-UK-regulated advisors with hefty commissions.

As independent financial advisors we provide 100% transparent fee-based advice that is UK-regulated meaning that our only interest is in doing what is right for our clients.

You can contact us via the form at the bottom of this page to request a free initial consultation.

What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?

A Qualifying Recognised Overseas Pension Scheme, or QROPS is an pension scheme outside of the UK that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC) to accept transfers in from UK pensions. A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits.

When did QROPS begin?

Although transferring pensions away from UK has been around for many more years, QROPS as we know them now were born in 2006 as part of sweeping changes made to simplify the UK pension system. These changes took effect from 6th April, 2006 which is famously known as A-day and saw other measures introduced such as the Lifetime Allowance (LTA).

Should I transfer my UK pension to a QROPS?

Since 2006, approximately 120,000 pensions have been transferred away from the UK into a QROPS. In our opinion (based on nearly a decade of industry experience) the majority of these transfers have been unnecessary. Any decision to transfer to a QROPS should be based on real objective tangible benefits that can be clearly demonstrated – such as concerns over the Lifetime Allowance (LTA). Sadly, in a lot cases advisors have benefited more than clients by moving pensions away from the safety of UK regulation in order to use extortionate commission-paying structures and unsuitable investments.

Working with an independent advisor who is transparent, fee-based and UK-regulated will protect you against receiving the wrong advice.

Who is eligible for a QROPS?

It’s generally assumed that anyone who has a UK pension and no longer lives in the UK qualifies to transfer their UK pensions into a QROPS. If you haven’t already lived outside of the UK for five full consecutive tax years then you may transfer you pension to a QROPS but you will pay UK rates of tax. For example, this might apply to a retiree. For anyone with five or more years until access it need not be a relevant concern.

Certain pensions cannot be transferred either to a QROPS or any other personal pension (such as a SIPP). Civil service pensions (e.g. teachers, NHS, Armed Forces etc) cannot transfer their pensions as these are ‘unfunded’ final salary schemes. Also the state pension cannot be transferred.

Which countries can I transfer my UK pension to?

You can transfer your pension to any country listed by HMRC as having recognised schemes. Typically, you would transfer to your country of residence or a third jurisdiction. However if you are not a resident of the EEA then any transfer to a third country would trigger the 25% overseas transfer charge. For example, a resident of Australia would be fine to transfer their UK pension to a QROPS registered in Australia but would face the overseas tax charge if they were to transfer to a country such as Malta. An expat in France could transfer their pension to Malta without this charge (as both France and Malta are in the EEA) however they wouldn’t be able to transfer to a scheme in France as there are no France-based schemes recognised currently recognised by HMRC.

What is the HMRC QROPS list?

Her Majesties Revenue and Customs (HMRC) maintains a list of schemes that it recognises as overseas pension schemes that qualify to receive the transfer of UK pensions (hence the acronym QROPS). In order to maintain their status on the list, schemes must fulfil certain criteria and essentially maintain parallels with the UK system. For example, any scheme that offers access before 55 would not qualify as this would be an advantage over a UK scheme and could lead to pension liberation – or ‘pension busting’ – as was seen in New Zealand in the early days of QROPS.

Some advisors will tell you that the scheme they recommend is ‘approved’ by HMRC. This is absolute nonsense. It is not the function nor purpose of HMRC to ‘approve’ pension schemes. Inclusion on the list merely means that the scheme meets the criteria to be defined as a QROPS and nothing more. Inclusion on the list does not equal approval or signify any hallmark of quality.

What are the main QROPS jurisdictions?

There are currently 29 different countries represented on the HMRC list of recognised QROPS (updated 13th July, 2020). This number is lower than the overall average since QROPS first came into existence in 2006.

Since the ‘overseas tax charge’ was introduced anyone outside of the EEA can only transfer their UK pension to the country where they are resident or face a 25% tax charge for transferring to a third country.

The main countries for QROPS transfers within the EEA are Malta and Gibraltar. Historically, Guernsey, Singapore and New Zealand have played a role as popular jurisdictions.

QROPS Malta

There are many factors that have established Malta’s prominence as a popular jurisdiction for pension transfers. Malta is a member of the EEA, it is well-positioned geographically between timezones and it has a well-established financial services sector. Furthermore, as a country its population is growing rapidly and 90% of people speak English.

Malta is popular as a jurisdiction also thanks to its favourable double-taxation treaties which allow payments to be paid gross without tax deducted as source.

What are the new Malta QROPS rules?

Malta’s financial services sector is regulated by the Malta Financial Services Authority who have overseen recent changes to QROPS rules which are covered in more detail here.

QROPS Gibraltar

According to HMRC’s list of recognised overseas pensions there are currently 52 schemes in Gibraltar that can accept the transfer in of a UK pension (updated 13th July, 2020).

Gibraltar provided an attractive alternative to anyone resident in a country that had no double-taxation agreement with Malta due to its flat withholding tax of 2.5% on income.

In 2015, the UK government announced new pension freedoms which extended to a number of QROPS jurisdictions – but NOT Gibraltar. Flexi-access drawdown is therefore not available in Gibraltar meaning that after a pension commencement lump sum (PCLS) of 30%, the remaining 70% must be used to provide an income.

A Qualifying Recognised Overseas Pension Scheme, or QROPS is an pension scheme outside of the UK that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC) to accept transfers in from UK pensions. A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits.

QROPS Guernsey

In the early days of QROPS, Guernsey emerged as a popular jurisdiction until 2011 when it was delisted by HMRC. This meant that Guernsey could no longer receive transfers in of UK pensions. Individuals with existing Guernsey QROPS would be unaffected and could keep their QROPS there.

Anyone with an existing Guernsey QROPS should examine their options especially when it comes to drawdown and taking benefits from the scheme.

QROPS Australia

There are countless schemes in Australia that are recognised by HMRC as being able to accept a UK pension transfer. However, they are only suitable for residents in Australia.

Rule changes in 2015 mean that you cannot move a UK pension to an Australian QROPS until at least the age of 55 as Australian Superannuation Schemes allow access before 55 which is contrary to UK rules.

QROPS New Zealand

New Zealand was also a popular jurisdiction in the early days of QROPS when rules were slightly looser. There were many instances of ‘pension-busting’ whereby rogue advisors would offer expats the opportunity to access a portion of their UK pension before normal access age.

There are still some New Zealand based QROPS recognised by HMRC but these are only suitable for residents of New Zealand.

How are QROPS regulated?

One of HMRC’s criteria in recognising a jurisdiction hosting QROPS is that they have a regulatory body of some kind. There is no universal regulator of QROPS. If you have a QROPS in Gibraltar then it will be subject to different regulation than a QROPS in Malta, for example.

This is an important area often overlooked by expats when they move their pension from the UK and the safer regulation of the Financial Conduct Authority (FCA) to a jurisdiction with less efficient regulation.

QROPS and Consumer Protection

When you take regulated financial advice in the UK you are protected by the Financial Conduct Authority and can complain against poor advice to the Financial Ombudsman Service (FOS). If you have a complaint in relation to how your UK registered pension scheme is run you can also complain to FOS or the Pensions Ombudsman.

If you receive advice from an adviser regulated in another country any complaint you make against the advice will have to be made to the authorities in that country. You may receive advice in the UK from an adviser who has “passported in” their regulated status and again you will have to complain to the authorities in the country that adviser is regulated in.

If you have a complaint about how your QROPS is run, then you will have to complain to the regulator in the country the QROPS is based.

What is the ‘10 year’ reporting rule on QROPS?

For the 10 years from the date that the UK pension benefits are transferred to the QROPS, the trustees of the overseas pension scheme must report once a year to the UK’s HMRC to confirm continuing qualification with the rules.

They also have to report payments made to the member (or their dependants) from the scheme. After 10 years, this reporting requirement falls away.

What is the ‘5 year’ rule on QROPS?

For those that have transferred to QROPS before 6th April 2017 you also have to be resident outside of the UK for 5 consecutive tax years by the time you come to retire or take benefits. The period of non-UK residence was extended to 10 consecutive tax years for those who transferred on or after 6th April 2017. UK tax rules can apply for the 5 full tax years after you have transferred to a QROPS regardless of how long you have been non-resident.

If you are UK resident when you take benefits from your QROPS this is likely to be subject to UK income tax.

Is it a good idea to buy an annuity on my UK pension or QROPS?

The guarantee of a known income for life appeals to risk-averse individuals. Purchasing an annuity means handing over your pension pot to an annuity provider. In return, the provider will guarantee you a lifetime income (i.e. your pension), no matter how long you live.

Annuity rates vary depending on a number of circumstances, but in particular the level of interest rates. The current low levels of interest rates have meant many people have ended up with a lower amount of pension income than they might have hoped for.

When you opt for an annuity your capital is gone forever. This is the trade-off for getting a lifetime income. Furthermore, should you wish to build-in inflation protection and a pension for your surviving spouse, since your pension has to stretch much further, this will reduce the amount of your own pension that you receive. In addition, unless you have purchased certain guarantees at the outset (and even if you have the guarantee period is typically only 5 or 10 years) then all of the remaining fund will pass to the insurance company on your death and not to your chosen beneficiaries.

Does the Lifetime Allowance apply to QROPS?

The Lifetime Allowance (LTA) applies to any pension that received UK income tax-relief on the contributions. As a QROPS cannot receive contributions from UK income that receives tax-relief it is therefore not considered in your LTA.

One of the few instances where a transfer to a QROPS is good advice is when the LTA is a relevant concern for an individual. The LTA currently stands at £1,055,000 which means that any pensions accrued above this amount are subject to increase tax on drawdown of 25% (or 55% if taken as a lump sum).

A transfer to a QROPS is deemed to be a Benefit Crystallisation Event (BCE) which then allows the pension to grow free from any concern of charge for exceeding the LTA. Anyone living outside of the UK with pensions in the UK close to the LTA and with several years until they intend to access them might consider a transfer to a QROPS.

What is the Overseas Tax Charge for UK Pensions?

A 25% tax charge (known commonly as the Overseas Tax Charge or OTC) on transfers to a qualifying recognised overseas pension schemes (QROPS) was introduced to stop people from exploiting tax loopholes when transferring pension funds out of the UK to avoid UK tax.

The charge DOES NOT apply if the following criteria are met:

  • The person transferring the funds is tax resident in the same country that the QROPS is based
  • The pension transferring the funds is a tax resident in the EEA and the QROPS is based in a country within the EEA, including Gibraltar.

What happens if I transfer to an overseas scheme that is not a QROPS?

Although quite rare, there are scammers who contact people with promises of giving early access to a pension or offering special investment opportunities. If you transfer to an overseas pension and it is not a QROPS then usually you will be classified as making an unauthorised payment from your pension which could result in an unauthorised tax charge of 55% with the possibility of additional penalties.

Such a transfer is also unlikely to be regulated and is likely to leave you without any recourse to compensation. You may also find yourself in investments that are not diversified or not suitable to your attitude to risk. In short – the worst that could happen is that you lose all of your money and still find yourself with a tax charge to pay. Your existing scheme should conduct their own due diligence to ensure that the receiving scheme is on the HMRC’s list of recognised QROPS. However no system is ever watertight and you should use your own judgement to protect your pension from scammer.

Am I free of UK rules and taxes on my pensions if I transfer to a QROPS?

On transfer your QROPS will have a 10 year reporting requirement to HMRC which means that the scheme must comply with UK rules (such as access from 55 only).

For those that have transferred to QROPS before 6th April 2017 you also have to be resident outside of the UK for 5 consecutive tax years by the time you come to retire or take benefits. The period of non UK residence was extended to 10 consecutive tax years for those who transfer on or after 6th April 2017. UK tax rules can apply for the 5 full tax years after you have transferred to a QROPS regardless of how long you have been non-resident.

Pension Freedoms and QROPS

When the new pension freedoms were announced for defined contribution pensions in the UK, QROPS remained subject to a test that 70% of the fund must be used to provide income. This was removed for all QROPS in April 2017 and individuals now have the same options as members of UK registered pensions. There is also retirement age test of 55 which has now been modified. The new regulations allow for the following payments before age 55:

  • a serious ill-health lump sum
  • a short service refund lump sum
  • a refund of excess contribution lump sum (where you pay too much into your pot by mistake)
  • a winding-up lump sum (where you have a small pot and the scheme is wound up)

Can I transfer a QROPS back to the UK?

The simple answer is “yes” however you should always seek professional advice over tax and the costs involved before deciding.

Since 2006, many QROPS transfers have been unnecessarily recommended. Even for an individual not returning to the UK it is very rare that a QROPS transfer would be in their best interest. For someone who does return then the original transfer out was definitely bad advice and they should consider pursuing a complaints process.

Many people who have a QROPS and move back would be better off in a SIPP as the ongoing costs are lower however as most QROPS are sold with an insurance bond that has a surrender penalty it is important to factor in the exit fees.

What tax do I pay on my QROPS?

For any specific tax query, you should seek professional advice. Broadly speaking, there should be no tax to pay on the transfer out of the UK unless you are above the Lifetime Allowance (LTA) which is 25% of any amount above £1,055,000 (the LTA at 6th July, 2020).

Following transfer, the assets will continue to grow tax-free regardless of the investment vehicle. We mention this as insurance bonds are often recommended by offshore advisors for their ‘tax efficiency’ whereas the truth is that they are simply the vehicle that generates the most commission for the advisor.

On drawdown the tax you pay will depend on where you are resident and whether that country has a double-taxation agreement with the jurisdiction where the pension is held. If the QROPS is in Malta then benefits are paid out gross (subject to DTA). In reality, this is the same as if the pension were still in the UK so any ‘tax benefits’ on income of a QROPS that an offshore advisor tells you about are massively exaggerated.

What is income tax on a QROPS?

Income tax on a QROPS will depend on where the QROPS is established. If in Malta (the most common destination), there is no tax at source providing you are resident in a country that has a double taxation agreement (DTA) with Malta. Benefits are paid gross and then it is your own responsibility to declare and pay tax in the country where you are resident.

How are QROPS and UK pensions are taxed in Portugal?

As a resident of Portugal you will be subject to local rules rather than the UK or wherever your QROPS is based (provided that jurisdiction has a double-taxation agreement – DTA – with Portugal)

Portuguese residents accessing UK pensions or QROPS income will attract progressive Portuguese income tax rates ranging from 14.5% to 48%. If you qualify for non-habitual residency (NHR), however, you can receive UK pension income completely tax-free as income. Changes in Portuguese legislation specify that this income must be taken over a period of at least ten years so that it meets their definition of ‘income’.

How are QROPS and UK pensions taxed in France?

In France, the threshold for paying tax on income starts at 11% above €9,964 (a change from 14% above €10,064 in 2019). The middle-income tax rates of 30% and 41% apply up to €156,244. Above this amount the highest rate of 45% is charged. There is a capped 10% allowance on gross pension income.

Taking your UK pension as a lump sum can limit French tax to a fixed rate of just 7.5% with an unlimited 10% allowance. This may be possible if you have not already started drawing benefits from your pension and you take the entire fund in one go.

Pension income and lump sums are also subject to annual French social charges of 9.1%. However, social charges do not apply if you hold Form S1 (available at UK State Pension age) or are not registered for French healthcare. If you are under UK retirement age and considering taking a pension lump sum, you could therefore save unnecessary social charges by taking private medical insurance instead of joining the French healthcare system.

How are QROPS and UK pensions taxed in Cyprus?

Foreign pension income is taxed at the flat rate of 5% on amounts over €3,420 or you can however, on an annual basis, elect to be taxed at the normal tax rates and bands. It might be beneficial to do the latter if your overall income is around €19,501 or less as this income below this threshold is not subject to tax. The initial lump sum can be taken tax free.

How are QROPS and UK pensions taxed in Spain?

Spanish residents accessing UK pensions or QROPS income will attract Spanish general income tax. Rates vary regionally, but generally start at 19.5% and reach up to 48%.

How are QROPS and UK pensions taxed in Italy?

If you are thinking of moving to Italy then there are favourable regimes that could mean you pay a lot less tax on any overseas pensions (regardless of UK or QROPS). Personal pensions are taxed in Italy according to progressive rates.

How is a QROPS taxed on death?

It is another myth that your UK pension will be subject to more favourable treatment on death if you transfer to a QROPS. The rules around taxes due on death on UK pensions have changed in recent years.

On death before 75, there is no tax on UK funds. For money purchase pensions the whole fund can be paid in cash to the beneficiary. Over 75, the spouse, for example, can leave the fund intact with no tax and take the option of a taxable income (locally and not 45 % UK Pension tax). On the death of the spouse, the grandchildren can take tax free income up to their allowances, or children or other beneficiaries can inherit a tax-free pension fund in the UK. Pension funds are taxed in the hand of the beneficiaries since April 2015.

Who can inherit my QROPS?

You are free to nominate any beneficiary you wish. The same is true of a SIPP. You can nominate anyone you like to inherit your UK pension or QROPS – e.g. a family member, friend or a charity.

Who are the main QROPS Providers?

 

Sovereign QROPS

Sovereign have been a large trustee company in the offshore pension world for several decades. Since the inception of QROPS in 2006 they have maintained a presence in all the popular jurisdictions from Guernsey, Malta and Gibraltar and also offer a UK SIPP.

Momentum QROPS

Momentum look after over £2 billion of assets and offer pensions in the UK, Malta, Gibraltar and the Isle of Man.

STM QROPS

STM Trustees are another big player in the QROPS market with pensions in Malta and Gibraltar and often utilise their own insurance bond provided by STM Life in Gibraltar.

What can I invest in a QROPS?

QROPS can hold various investments but quite often there is a broader choice through a SIPP. Most advisors will recommend investing via an insurance bond (for their own benefit) or via a more cost-efficient platform which means you essentially only hold assets permitted by the bond or platform provider.

It might be possible to invest without using a bond or platform but this will be subject to trustee discretion. Typically, trustees prefer to limit their service to basic administration and reporting and are not involved in the custody of directly held assets.

Our clients manage their pensions and investments using diversified model portfolios with a mix of funds and low-cost ETFs.

What currencies can a QROPS have?

While UK SIPPS for UK residents will offer pensions in GBP for obvious reasons, one of the ‘benefits’ of QROPS often touted is the potential to have your pension in USD or EURO. However, since the International SIPP market has evolved, we are able to offer UK domiciled SIPPs in a range of currencies including GBP, USD, Euro, Australian Dollars, Swiss Francs and others.

When can I access a QROPS?

In order to maintain their recognised status with HMRC a QROPS cannot be accessed before the age of 55.

QROPS and Offshore Insurance Bonds

Quite often offshore financial advisors will recommend using an insurance bond to hold the investments within a QROPS. This should be an immediate red flag that you are not receiving the best advice and the advisor is recommending the product that remunerates them the most generously in terms of up front commission (often as high as 8%) which is then indemnified by your fees over a fixed term of 5 to 10 years.

It is possible to use insurance bonds without commission so that they are much cheaper and comparable to platforms for pensions above a certain amount. However, in terms of ease of use and investment management we favour using platforms in the majority of cases.

QROPS and International Investment Platforms

Investment platforms are a much more economical and efficient way to manage investments within a SIPP or QROPS. They are lower in cost in most cases and provide you with the technology and support that you would expect in 2020! Importantly, there is greater transparency, security and regulation if you use a platform based in the UK with FCA regulation.

How much does a QROPS cost?

In the majority of cases the answer to this one is simple: TOO MUCH!

The are multiple layers of cost that can be very confusing. Typically, you need to pay a trustee an establishment fee and an annual fee: this is usually fixed at around £500-£1,000 for both. Then there is the cost of the investment vehicle (bond or platform) which should be around 0.2-0.4% per annum but can often be higher than 1% if the advisor is greedy in taking high commissions. Then there is the cost of the investments themselves which is low in the case of ETFs but high if you are using actively managed funds.

The biggest cost is the cowboy advisor who takes up to 8% as an upfront commission from the insurance bond, a kickback of up to 5% from the fund manager and then may even have the cheek to charge you an additional 1% per annum for their own ‘service’.

What is the surrender penalty on my QROPS?

This should only apply when insurance bonds are used and it will depend on how it was set up by your original advisor and also the provider being used. As an example, often advisors will take an up front commission of up to 8% and tell you there is a 10 year term with a charging structure of between 1-1.25%. If you exit within this period you will have to pay all the outstanding fees due for the remainder of the term.

In this way the charges are always based on initial premium so even if you make a withdrawal you will still pay the same fees in money terms but increasing them as a percentage of your fund.

Some providers will give you full allocation while others will hold 10% ‘in cash’ which really only exists on paper as it is never available to you to invest or draw from. It has been ringfenced to pay the annual fees and will dwindle down to zero by the end of the term. In reality this is no different to paying an explicit charge of 10% up front. No one would ever agree to an initial charge of 10% so it is disguised as a ‘cash account’ to make it look like the money is still yours even though you will never see it again and it will never be invested for you.

What is the difference between a QROPS and a SIPP?

There are many differences between QROPS and SIPP which you can read about in more detail here. If you’re wondering whether a QROPS or a SIPP is more suitable as a vehicle to transfer your UK pension into then in the majority in cases we recommend using a SIPP. QROPS work well for tax planning if the Lifetime Allowance is a concern but in terms of security, regulation, cost, access, functionality, investment choice and all the other important priorities with any pension SIPPs come out on top!

Can I transfer a Defined Benefit pension to a QROPS?

Yes, you can transfer a defined benefit pension into any HMRC recognised scheme whether it is based in the UK or elsewhere. However, the most important consideration is whether you should transfer your defined benefit pension at all. It’s a very complex area of financial planning which we’ve simplified for you here.

Should I transfer my UK pension to a QROPS or a SIPP?

The answer to this depends on your individual circumstances. The first priority to establish is whether you need to transfer your pension or whether you are better as you are. The next step is ascertaining through careful consideration whether a QROPS or a SIPP will provide you with greater benefits.

What are Benefit Crystallisation Events?

Benefit Crystallisation Events are relevant when discussed in the context of the Lifetime Allowance.

This is the maximum amount of pension benefits that can be taken from registered pension schemes before a tax charge applies. It used to be £1.8 million in the 2011/12 tax year, was then reduced over time down to £1 million and in the 2020/21 tax year the lifetime allowance is now £1,073,100. It increases each tax year in line with CPI.

Pension benefits held in a registered pension scheme will be tested against the lifetime allowance when the pension is accessed, the pensionholder dies, they reach 75 or the pension is transferred to a QROPS.

These occasions, which each trigger a test against the LTA, are known as benefit crystallisation events.

Is a UK pension transfer to a QROPS a Benefit Crystallisation Event?

Yes. This is why an overseas transfer can be favourable for an individual who has a lifetime allowance concern and is some years away from accessing their pension.

How can I choose the right QROPS advisor?

You’ve already found them! See contact form below.

Seriously, when choosing an advisor you need to consider objective ways to trust that they are going to give you best advice. This means thinking about how they are regulated and how they get remunerated. We provide UK-regulated advice on pensions and we are 100% fee-based which means we do not receive any commission from providers or investment funds. Our only interest is in giving the best advice to our clients and establishing prosperous long-term relationships.

What is the process for a UK pension transfer to a QROPS?

You shouldn’t make any decision without taking proper advice first and making sure the advisor and company you deal with are properly qualified, independent and regulated.

Should I transfer my UK pension to a QROPS as a US resident?

If you’re a US resident with private pensions in the UK then you should take a look at this article to understand the challenges of your situation and the options available.

In short, a QROPS isn’t necessarily going to be the best option. Currently, there are only two US based schemes recognised by HMRC and a transfer to a third country – such as Malta – will incur a 25% tax charge upon transfer.

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