What is a QROPS and how can I transfer to one?
If you’re thinking about living abroad, or you’ve already moved, there are two things you can do with your UK pension.
You can either leave it where it is, or you could transfer it into a suitable overseas scheme, known as a QROPS.
This is a decision to be made very carefully, and certainly with the support of a financial adviser, but there are potential benefits to this route.
We take a closer look.
What is a QROPS?
A qualifying recognised overseas pension scheme – or QROPS – is an overseas pension scheme that HMRC regards as eligible for transfer from pension schemes registered in the UK.
To gain this eligibility, a scheme will need to have similar characteristics to those in the UK.
For example, they might not allow access to pension benefits before the age of 55.
Pension schemes from outside the UK that are thought by their providers to meet HMRC’s qualifying rules can be put forward for inclusion on a government-managed QROPS list, which is updated twice a month.
One of the main reasons people consider a QROPS is tax efficiency.
Transferring your pension overseas can have significant tax implications, however – in the UK and in the country where your QROPS is located – so it’s well worth taking some professional advice before making your move.
So how does a QROPS work?
The steps you take to set up a QROPS are much like any kind of pension transfer, but here are the fundamental steps you need to consider.
Seek expert advice
This is always true when transferring a pension, but when you’re looking at a QROPS transfer, you should definitely seek the help of a regulated pension adviser.
It would also make sense to talk to an adviser in the country where your QROPS is based.
Check the HMRC QROPS list
It’s essential that the overseas scheme you have chosen is recognised by HMRC – the list will provide the assurance you need.
Talk to your provider in the UK
You’ll need to know that a QROPS transfer is possible, and you’ll also need to fill in ‘transfer out’ forms to get the ball rolling.
Contact the QROPS provider
You’ll need the scheme’s details and to know that they’re willing to accept an overseas transfer.
There may well be issues around language, so prepare your information and questions carefully.
Complete Form APSS263
You’ll need to download and fill in Form APSS263 from the government website, so you can give it to your UK pension provider.
Be patient
While things can fall into place quickly, transferring your pension is likely to take some time.
What about the key pros and cons?
Here are some of the main benefits and risks associated with QROPS:
| PROS | CONS | |
|---|---|---|
| Income tax | Your pension income may be taxed more favourably abroad | You might have to pay a higher rate of tax, or even twice if there’s no double taxation agreement |
| Tax at time of transfer | You might be able to transfer tax-free | QROPS transfers can attract a 25 per cent tax charge |
| Flexible access | There can be more flexibility around accessing your pension money | Greater flexibility can increase the risk of emptying your pension fund early |
| Investment choice | You might gain a wider choice of investments outside the UK | Investments can be less regulated and riskier than in the UK |
| Estate planning | There can be more flexibility around passing on your pension when you die | Rules and taxes around inheritance might be less favourable than in the UK |
| Currency | If you live in the country where your QROPS is based, you can receive income in the local currency, avoiding the cost of conversion | There aren’t any significant downsides |
| Protection | The country where your QROPS is based might provide greater safeguarding should a pension provider fail | You won’t be protected by UK organisations such as the Financial Conduct Authority and Pensions Ombudsman |
What about scams?
Another potential challenge with QROPS is scammers.
They often target overseas transfers, so you need to be aware of this.
The abundance of scammers around QROPS is another very good reason for taking regulated professional financial advice – to make sure the scheme you’re considering is genuine.
The golden rules of avoiding scams apply as usual.
Be immediately suspicious of anyone who contacts you unexpectedly offering to help transfer your pension, and if the offer sounds too good to be true, then the chances are, it is.
In a nutshell
The key takeaway when you’re thinking about a QROPS for your retirement is that there’s no such thing as too much knowledge.
There are potential advantages if you’re aiming to live overseas, but you must be fully aware of the possible downsides and penalties too.
The wise way forward is to take all the advice you can from a regulated professional who really knows the pros and cons of QOPS, and can help you shape a strategy that fits your circumstances.
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