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Financial Planning • QROPS

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

A QROPS is an overseas pension scheme that meets certain requirements set by HMRC.

A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits. QROPS came about as part of UK legislation launched on 6 April 2006. This was a direct result of EU human rights directive for the freedom of movement of capital and labour. It is essentially a trust or a contract-based offshore pension. As such, the tax residence of the beneficial owner or beneficiaries is critical, as some countries do not recognise trusts.

A QROPS can be appropriate for UK citizens who have left the UK to emigrate permanently and intend to retire abroad, having built up a UK pension fund. Alternatively, a person who is born outside the UK and has built up benefits in a UK-registered pension scheme can move their pension offshore if they want to retire outside the UK. Unfortunately, your UK State Pension benefits cannot be transferred. Defined contribution, defined benefit pension schemes and SSAS pensions can be transferred abroad.

A QROPS does not have to be established in the country where one retires; instead, a person can move the pension to another jurisdiction and have the benefits paid into their country of choice. 

QROPS Key Points

  1. As with other private pensions, you can begin drawdown from the age of 55
  2. With a QROPS, access is flexible, meaning you can draw down as much or as little as you like.
  3. QROPS typically offer a broader range of investment options and are not subject to the same restrictions most UK pensions are.
  4. In contrast, unlike defined benefit pensions, which typically only have a limited inheritance amount for spouses, a QROPS allows you to name any chosen beneficiary you like.
  5. QROPS allow you to hold and invest in multiple currencies. This can make them appeal to expats who will be retiring abroad and don’t want to receive their pension in pounds sterling.
  6. The benefits of a QROPS can vary depending on how long you have been offshore, your intent to stay offshore and whether you remain offshore for a long or short period.
  7. A QROPS can allow you to take an enhanced tax-free lump sum when you begin drawdown. This increases to 30% from 25%.
  8. Much like a SIPP, a QROPS can consolidate multiple pensions.
  9. If you transfer into a QROPS and live outside the EEA (European Economic Area), you will be subject to the ‘Overseas transfer charge’ – 25% of the value.
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Disadvantages & Risks

  • Investment Risk

    You bear the responsibility for investment decisions, which can lead to potential losses if investments perform poorly.

  • Fees and Charges

    QROPs often come with various fees and charges, which can reduce the overall value of your pension fund.

  • Loss of Guarantees

    Transferring may result in the loss of valuable guarantees, such as a guaranteed income in retirement, offered by some workplace pension schemes.

  • Complexity

    Managing a QROPS can be complex, especially if you lack experience in investment decisions.

What Are Your Pension Transfer Options

SIPP

A SIPP is a pension ‘wrapper’ that holds investments until you retire and begin to draw an income. It works in a similar way to a standard personal pension.

Read More

QNUPS

A Qualifying Non-UK Pension Scheme (QNUPS) is a form of overseas pension available to British citizens.

Read More

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