Understanding Qualifying Recognized Overseas Pension Schemes

Sandy King

Understanding Qualifying Recognized Overseas Pension Schemes (QROPS) Pensions are a valuable part of financial planning and planning for your retirement.  It’s important for everyone to understand their complexities later on in life when these incomes become reality. The benefits of a QROPS could make a big difference to you and your family or to your beneficiaries if you are no longer living in the UK and you left your pension behind.

Should I consider a QROPS? (Qualifying Recognized Overseas Pension Schemes)

Since launching in 2006, QROPS, also referred to as Qualifying Recognized Pension Schemes, have grown in popularity. They are an overseas pension recognized by HMRC, which continues to see growth amongst those considering overseas moves, as well as other expatriates. QROPS has undergone changes as annual growth for demand endures, which appears set to continue during 2016 while the market continues maturing, and the tremendous benefits become more evident to people.

Here are some of the benefits:

  1. Up to a 30% lump sum tax-free withdrawal from age 55.
  1. The LTA (Lifetime Allowance) has dropped considerably since 2013-14 where the LTA was £1.5 million. For the tax year 2016-17 onwards, the LTA will be £1 million.

Once the LTA figure has been breached, a tax of 55% will be charged on the excess growth surplus at the next BCE (Benefit Crystallization Event). This is a point in the future which is triggered by a change in the pension status.  QROPS can be used as part of your Lifetime Allowance mitigation plans.

Therefore, it’s recommended that you test for LTA now.

  1. Qualified Recognized Pension Schemes are taxed within the country that you reside.
  1. Transferring to QROPS allows you to elect a beneficiary for your final salary payments.
  2. A diversified investment portfolio can be created and managed more effectively.

What’s Next for Expats?

Many future retirees have plans to move overseas, so, it is critical to plan now. If you are considering transferring your pension to a QROPS, you need to ask the following questions:

  • Does the QROPS meet the qualifying conditions of the ROPS (Recognized Overseas Pension Schemes)?
  • Does it meet the age test minimum requirements (age 55)?
  • Will it appear on the QROPS public lists?

Unless citizens are experiencing severe health conditions, they must be at least 55 years old to take benefits from a QROPS. The HMRC (HM Revenue & Customs) wants these questions answered to confirm those under the age of 55 are not withdrawing benefits in countries where their scheme was established, or the scheme’s rules will prevent this from happening where UK tax relief was already paid.

The best way for you to determine if a QROPS is a good option for you, explore the pension options, and determine the pros and cons.