A QROPS or Qualifying Recognised Overseas Pension Schemes, is simply an offshore pension wrapper that the UK HMRC have approved for transfer to. This means a UK pension holder can move a pension scheme overseas if they are, or will become, an expatriate. It covers most pension schemes that are not already an annuity e.g. defined benefit, money purchase, personal, SIPP, stakeholder. It does not cover the state pension scheme in any way.
The information on this page is a guide to some of the key features of a QROPS. It aims to look at the pros and cons of transferring a pension out of the UK. The information is accurate to the best of our knowledge, but no guarantees are made that it is accurate and up-to-date, and hence no financial decisions should be based on the content of this page. Seek professional advice in all cases.
These will vary in every case, but a standard QROPS transfer from the UK to an Offshore wrapper, is likely to incur the following charges :
- Administration costs of setting up the QROPS
- Annual QROPS admin fees
- Initial investment fees for the lump sum investment
- Ongoing Annual fees for managing that investment
There may also be a market value adjustment, if you are cashing in a pension investment, in order to transfer the cash overseas into an offshore QROPS pension.
Any income will usually be paid gross, and it would be the recipients duty to declare tax on that income where relevant. Tax free lump sums can be taken as per the UK at 25%. Some jurisdictions may allow a variation on this (larger lump sum), but some caution should be taken in this area.
Some QROPS schemes require the scheme holder to be resident in the same country. However, more commonly this is not the case. An english expat in Spain, for example. could hold their QROPS pension in Guernsey etc.
As the pension is to be held outside of the UK, there are a wide selection of countries where the new pension fund could be setup, not necessairly the same country as the residence of the client. Some of the more popular jurisdictions, who have obtained permission from the UK HMRC, are :
Guernsey is an independently-governed Island, English-speaking Crown dependency with a population of 60,000. The Guernsey Financial Services Commission is the regulatory body for the finance sector in the Bailiwick of Guernsey.
Beneficial features of a QROPS pension in Guernsey (and many other jurisdictions) are :
- 25% Tax free lump sum
- Reduced Inheritance Tax implications
- Potential to pass full pension lump sum onto heirs.
- Borrowing capabilities with pension fund as security
- Choice of currency to reduce exchange risk
The Guernsey Association of Pension Providers (GAPP) has released a Code of Practice for Guernsey QOPRS. GAPP membership covers tha majority of Guernsey QROPS providers. The full draft code of practice can be found here : GAPP Code of Practice
QROPS schemes in Jersey have been exclusively for residents of Jersey only. There have been many reports that this is set to change during the course of 2011, to allow non-residents to also participate. There are 125 schemes in Jersey at the time of writing, which is a large number for a region that does not allow non-resident participation.
Many Guernsey QROPS administrators, also deal with resident QROPS in Jersey. It is likely that these firms will be the first to introduce to the market non-resident schemes.
One key advantage is the potential of a 30% tax free lump sum. Current Jersey residents who have brought their pension scheme over from the UK, have been allowed this benefit. It is likely this will be a key factor if/when the schemes become available to the wider market
The Jersey Financial Services Commision is the regulator in this region
This is one of the regions that has had a little controversy in the way that the QROPS rules have been 'stretched'. Under New Zealand pension law it is possible to obtain 100% of your pension fund as cash under certain circumstances.
Advisors and administrators dealing with a New Zealand law have, in some cases, sought to exploit this law, by allowing QROPS pension holders to withdraw up to 100% of their pension, once the 5 year window is up. It is by no means all New Zealand pensions that have done this, but there are a few that have tarnished the reputation of the rest.
This may appear a good feature, to be able to withdraw such a large %age. However, it is not within HMRC guidelines, and not the intended purpose of the transfer (to provide a retirement income). So there have been situations where this has taken place elsewhere, where QROPS schemes have been 'frozen' by the HMRC, and penalties tax charges of up to 55% have been incurred.
An example where HMRC can take action retrospectively, even after a QROPS scheme has been approved, is in Hong Kong. The Beazley Consulting pension scheme had approval removed, after it had already done considerable business with clients. This case demonstrates that :
- Even if QROPS schemes feature on the recognised list, HMRC can remove its status and retrospectively apply the punitive tax charges to individuals if it so wished.
- Appearance on the list does not constitute full ‘approval’
An even more extreme case of HMRC intervention is Singapore. In 2008 UK HMRC removed all Singapore QROPS from its list of jurisdiction that can offer QROPS. It is believed that this is due to the persistent mis-selling of QROPS in the Far East. Experts believe that the selling of pension-busting promises, by unregulated advisers was the downfall of QROPS in Singapore.