FAQs about Pensions, Expats and QROPS

Simon Ludden, Financial Planning Manager, answers some frequently asked questions about Pensions, Expats and QROPS.

A QROPS is a Qualifying Recognised Overseas Pension Scheme. It must be recognised by Revenue and Customs (HMRC) and also meet HMRC criteria.  Any QROPS can accept transfers from a UK-registered pension scheme so for many expats there may be an advantage in moving some, or all, of their funds across. 

Q. My pensions have fallen because of the strength of the Euro. Would I be better off in a QROPS?

A. A QROPS would give you the ability to invest your money in Euro- denominated funds - or in any major currency, therefore eliminating the currency risk for the future.

Q. Can I leave my pension fund to my heirs?

A. UK pension funds have severe restrictions on what can be left to one’s heirs. QROPS will often allow the fund to pass free of tax to one’s family.

Q. My UK pension provider tells me that I must buy an annuity by the age of 75. Is there an alternative?

A. Again, the options in the UK are very restrictive but by moving to a QROPS there will be no need to buy an annuity in most regimes - although that option will remain available to you.

Q.  Can I take my income gross within a QROPS?

A.  Yes - although you may be required to declare your income to the tax authorities in the country in which you reside.

Q.  Can I still take a tax-free lump sum - and how much will I be allowed to take?

A.  Yes. And certainly up to the maximum 25% of the fund as allowed under UK rules.

Q.  I’ve heard that schemes are offering up to 100% of the fund as tax-free cash by using regimes such as New Zealand.

A.   That’s true. However, HMRC has made it very clear that it will take strong action against schemes which abuse the system - particularly those paying out more than the regular tax-free cash. In fact, it says that any scheme found to be manipulating more than the usual tax-free cash will have its applications revoked. So even if your application has not been randomly checked, you could find your QROPS is no longer valid.

Q.  How can HMRC police this?

A.  In order to continue trading, all QROPS have to report to HMRC for five years. Some are saying that after that time 100% cash can be paid but this is a risky strategy that I could not recommend.

Q.  Which regime do you recommend that I use for my QROPS?

A.  As this money is usually very important for our clients’ financial wellbeing we will always recommend a regime which has strict controls in place. In my opinion, Guernsey has demonstrated that it takes this market very seriously by ensuring that all of the financial institutions involved in this area follow HMRC guidelines. It is also a regime with a history of strong regulation and financial stability.

Q.  What happens if I return to the UK to live?

A.  Your QROPS will revert to the tax rules relating to UK pensions.

Q.  Are there any major disadvantages in transferring to a QROPS?

A.  Take care to ensure that the scheme that you are transferring doesn’t contain any valuable guarantees as these will be lost on transfer. But as always, please seek independent advice from a properly qualified adviser to make sure that a transfer is right for you.

For further information about Pensions and QROPS contact Simon Ludden, Financial Planning Manager, on 01227 763939.