All the FAQ’s on QROPS Pension Transfer in One Place

1) What is a QROPS (Qualifying Recognized Overseas Pension Scheme)QROPS

  • A QROPS is a pension scheme set up outside the UK that must be regulated as a pension scheme in the country in which it is established.
  • A Qualifying Recognized Overseas Pension Scheme (QROPS) is any scheme recognized by HMRC as meeting standards and conditions equivalent to a UK pension. This approval allows anyone with a UK registered pension who is living outside the UK, or is intending to leave the UK, to transfer their pension offshore.
  • Simply put, you should view your pension as an asset. While it is in a UK scheme, although it is “your asset” there are certain restrictions, obligations and implications that apply. These restrictions are legislative or where in the fine print when you took out the pension and will have a large financial impact at some point.
  • While “your asset” is held in the UK by the pension group, it is subject to various regulations and limitations.
  • QROPS allows you to transfer this “asset” into a different HMRC approved scheme in a jurisdiction outside the UK. This offshore HMRC approved scheme will still be under UK pension rules and reporting requirements unless you have been a non-resident for 5 tax years years, at which point the scheme is no longer required to report to HMRC.
  • When you have been a non-tax resident for over 5 years, you obviously have greater flexibility and many of the limiting restrictions and obligations will no longer apply.

2) When was a QROPS Pension Transfer introduced?

QROPS

  • Due to European precedent in creating pension transferability, in April 2006 the UK HMRC introduced the QROPS for individuals meeting certain requirements.

3) What are the key factors of a good QROPS Pension Transfer?

  • Tax efficiency
  • Well established and secure jurisdiction
  • Investment Flexibility
  • Transparent Charges

4) Which QROPS Pension Transfer schemes are HMRC approved?

  • An updated list of eligible QROPS Pension Transfer schemes can be found here.

Benefits of a QROPS Pension Transfer?

5) Key Benefits of a QROPSQROPS Pension Transfer

  • No need to take an annuity or pay a UK tax charge upon death.
  • All unused pension funds can be left to your beneficiaries.
  • Much greater investment freedom.
  • Tax free lumpsum of up to 30%.
  • Access to global funds with higher returns.
  • Pension income is more tax efficient.
  • Take income and benefits in the currency of your choice.
  • Greater confidentiality.
  • Protection against possible future creditors (depending on jurisdiction)

Who Qualifies for a QROPS Pension Transfer?

6) What age do I need to be to apply for a QROPS Pension Transfer?

  • Anyone between the ages of 18 and 75 may apply for a QROPS Pension Transfer.

7) I’m currently a UK tax resident, can I still apply?

  • Yes, provided that you have a clear intention to become a non-UK tax resident within the next 12 months.

8) Can I transfer my UK pension if I am a US citizen?

  • Transfers to a QROPS for US citizens can be difficult, as many US based IRA’s are not permitted to receive funds from a UK registered pension scheme.
  • A simpler solution would be setup a QROPS outside of the US in a tax efficient jurisdiction.

9) What nationalities can apply for a QROPS Pension Transfer?

  • Most of the schemes are not available to US nationals although any other nationality may apply for a QROPS Pension Transfer.

10) Can I transfer to a QROPS once I have taken an annuity?

  • No.

11) Can I transfer to a QROPS once I have taken a payment on a final salary scheme?

  • No.

12) Can I transfer a state pension?

  • No. Unfortunately, you cannot transfer a state pension into a QROPS.

13) When I should I not transfer my frozen pension?

  • In most pension situations, provided you are a non-UK resident and intend to remain so for five years or more, the benefits can be immense if you transfer your pension.
  • However, some older pension’s plans have annuities set with higher interest rates and it may not be beneficial to transfer these.
  • Each instance varies and you will require the advice of a pension professional.
  • No matter what pension you have, given the large benefits, it is definitely worthwhile to discuss the option of a QROPS Pension Transfer with an adviser.

QROPS Pension Transfer Tax Implications?

14) What are the tax implications of moving my pension?

  • Transfer to a QROPS is a Benefit Crystallization event and is not subject to taxation unless it exceeds an individual’s lifetime allowance. This lifetime allowance is currently at £1 650 000 (2008/2009 tax year) and will rise to £1 850 000 by 2010/2011. If your pension exceeds this amount you need to specifically discuss this with a pension expert.

15) How will benefits or withdrawals of a QROPS Pension Transfer be taxed after the initial period?

  • This depends on where you are a tax resident of the time. There are schemes that achieve a minimal tax rate.
  • We believe that it is best to discuss this with an adviser who will be able to provide specific information where you are tax resident.
  • This means for example that if you take benefit from a Guernsey based QROPS (which is often recommended), there will be no tax deducted at source from payments that are made from the scheme.
  • You will however be subject to any taxation on such payments that are due in your country of residence at the time.

16) Will transfer to a QROPS attract any tax?

  • The transfer to a QROPS plan can be effected without the deduction of any UK tax.

QROPS Pension Transfer Investment Flexibility

17) Will I have to purchase an annuity if I transfer my UK pension into a QROPS?

  • No.
  • However, if your QROPS is correctly setup, you can if you want to. Remember that a good QROPS Pension Transfer offers greater investment flexibility.

18) What investment flexibility and choice will I have with a QROPS? (Can I manage my own QROPS assets?)

  • One of the biggest benefits of a QROPS is the investment flexibility and choice that it offers you! The better schemes offer greater flexibility and the degree of choice and flexibility depends on the scheme you choose. Some schemes will allow you to manage the assets with total freedom, while others have certain restrictions.
  • You may also appoint an investment adviser to make the decisions with you or for you, it all depends on what you are looking for. The best option would be to discuss the specific scheme with an investment adviser.

19) What happens if I move around the world?

  • No matter where you move in the world, nor how often you may move, your QROPS plan stays in the neutral offshore jurisdiction that you have chosen.
  • This is another reason why the jurisdiction of your QROPS is important.

20) Can I do a QROPS Pension Transfer myself?

  • No. Only appointed intermediaries are allowed to do a QROPS Pension Transfer.

21) If I transfer my UK pension to a QROPS can I access my fund as a 100% lumpsum?

  • No. Schemes and advisers that are offering 100% are being shut down by the HMRC and members are being levied heavy surcharges and penalties for this.

QROPS Pension Transfer Jurisdiction

22) What jurisdiction should you transfer your QROPS to?

  • You should ensure that it is in a tax-efficient, secure jurisdiction.
  • It should also have strong investor principles such as the UK.
  • The jurisdiction should offer significant improvement in investment and benefit options available. E.g. some jurisdictions require you to purchase an annuity, and place major restrictions on the funds you can go into.
  • A jurisdiction such as the Isle of Man, Jersey, or Guernsey would be optimal, as they offer tax efficiency and flexibility.

23) Why is Guernsey one of the best options?

  • Guernsey is an independent, well regulated and internationally accepted jurisdiction with a firm framework of legislation in the financial services sector.
  • Pension providers on the island have worked closely with HMRC to ensure a robust QROPS offering for both its resident and international clients.
  • It is a neutral jurisdiction which allows tax-efficient structures. This means that income and capital gains from the assets within your plan are not subject to Guernsey tax. Therefore, the assets within your plan grow in a tax efficient environment.
  • You can choose your QROPS Pension Transfer to be denominated in a hard currency (Pounds, Dollars or Euros).

QROPS Pension Transfer – What Happens If I Die?

24) If I die, what will happen to my QROPS Pension Transfer?

  • The better QROPS Pension Transfer schemes ensure that all remaining assets upon your death are distributed to Named Beneficiaries. Again, many tax and estate planning opportunities exist and should be discussed with a financial adviser.
  • Options available upon death that your QROPS should include are:
    • An annuity to spouse or dependants
    • Payment of the proceeds of your plan to a new plan for Named Beneficiaries.
    • Retention of your plan in trust for distribution at a predefined date or future event (within 2 years of your death).
    • Winding up of your plan and payment into your estate
    • Winding up of your plan and payment directly to Named Beneficiaries.
  • You should easily be able to amend your succession instructions.
  • Annuities are not purchased from Life Assurance companies. Thus, on death all remaining assets in the QROPS are returned to your plan for distribution in line with your wishes.

What are the Costs & Minimum Values of a QROPS Pension Transfer?

25) What are the costs associated with a pension transfer to a QROPS?

  • If you look at the costs in terms of a percentage of the fund value, then larger the fund value, the lower the charges.
  • Each specific QROPS scheme has its own charges and depends on various factors. Before deciding on a specific scheme look at the benefits and flexibility that they provide.
  • In the instance of a QROPS, cheaper definitely does not always mean better, and you need to carefully look at the specific scheme. If you’re going in to have a medical operation, would you choose the cheapest or the best doctor? The same applies with QROPS Pension Transfers.QROPS Pension Transfer
  • There are generally three costs that you need to be aware of in most QROPS schemes.
  • These are on average as follows:
    • Setup cost – on average these are 1% of the value.
    • Annual management charge – £1000 – £1500 p.a.
    • Underlying Fund Management – these are relatively modest and depend on the specific funds chosen.
  • Remember, that if you consider the benefits of a QROPS, these costs are insignificant. You need to take cognizance that with many pensions they are in a very low or even negative growth, and that upon death 50% or more of the funds generally return back to the life company.

26) What is the minimum value I can transfer to a QROPS?

  • Each specific QROPS varies. Different schemes have different charging structures and as a result they are only worthwhile provided that a certain threshold is reached. We have found that the minimum required for a basic QROPS is £25 000. Remember though that you can combine more than one pension to reach this figure. In general, where the amount is below this threshold it is not beneficial to transfer to a QROPS. It is important to note that many schemes allow you to include other investable assets to reach this figure. Thus, whatever the value of your pension, it is worth contacting an advisor as there is usually a solution to be found.

Various QROPS Pension Transfer Questions

27) Why are UK pensions tied up in many layers of regulations & restrictions?

  • This is mainly to protect tax revenues of the UK government by taxing annuities.
  • Secondly, it is to stop pensioners from spending all their money in the first 5-10 years and then relying on the state.

28) How long does it take to setup a QROPS Pension Transfer?

  • The length of the process varies. It can be 6 weeks or it can be quite lengthy and take a few months. On average, you should expect the process to take 2-3 months. Please see the procedure section to see the various steps.

29) Is my plan subject to EU savings tax directive (for European citizens)?

  • A QROPS Pension Transfer plan is currently not subject to the EU Savings Tax Directive

30) Do I have to first liquidate my assets held within my UK registered pension scheme before transferring them into a QROPS?

  • If the pension scheme is a SIPP or a SSAS, it may be possible to transfer the existing assets to the QROPS. Thought this depends on the specific QROPS scheme.
  • For most other pension schemes you will need to liquidate your assets before transferring to a QROPS.

31) Does the HMRC in the UK require the QROPS pension fund to report payments?

  • The HMRC requires that all QROPS providers notify them of any payments from transferred pensions for the relevant member. This does not apply unless:
    • The member is resident in the UK when payment is made.

32) Will a QROPS Pension Transfer accept the transfer of a protected rights fund?

  • Yes, provided that the QROPS plan is willing to accept it.
  • Form CA 1881 needs to be completed as this enables HMRC to keep track of where the protected rights are. If you are transferring your protected rights it is necessary to state that you understand that all protection associated with UK pensions legislation is being given up.

33) Can I purchase residential property with my QROPS fund?

  • If you have been a UK resident at any time in the last five tax years, then the answer to this and similar questions is precisely that which would apply to a UK registered pension scheme.
  • Thus, “yes” you are able to purchase residential property but it will be subject to a 70% tax charge of the asset value.
  • If you have a QROPS and have not been at any time resident in the UK for the last 5 tax years, then the operation of the QROPS is subject to the legislation associated with the jurisdiction where the QROPS is based.
  • Some of these jurisdictions do permit investment into residential property although most frequently this will be only permitted through indirect ownership that is through a corporate structure or property fund.

34) What happens if I have a QROPS Pension Transfer and return to the UK within 5 tax years?

  • If you are returning for holiday and are still a non-tax resident then everything is as per usual with QROPS.
  • If however, you are returning to the UK to work within 5 tax years, then you will need to report your QROPS to the HMRC and, although it can remain offshore, it will fall under UK rules and regulations.

35) Will the QROPS declare any payments made from the scheme to the HMRC?

  • During the first 5 tax years, the QROPS trustee is required to let the HMRC know of any payments, withdrawals, or transfers made from the QROPS Pension Transfer.
  • After the first 5 years, the QROPS trustee is no longer required to let the HMRC know of any payments, withdrawals, or transfers made from the QROPS Pension Transfer.

36) During the first 5 tax years of a QROPS Pension Transfer scheme do I also need to declare payments?

  • Yes
  • During the first 5 tax years, the QROPS trustee will report any payments or transfers made to HMRC. You must also fill out a self-assessment return (available from HMRC) and declare any payments or transfers.
  • If you have setup a QROPS Pension Transfer you should return your completed form to the tax office that is currently dealing with your affairs, or that which was dealing with your affairs immediately before you left the UK.