qrops pension advice

 
 
Deciding to make a QROPS transfer is an important decision, so it is essential that you understand the benefits and possible disadvantages that the decision would bring.

Tax burden

Tax is the main issue. Otherwise the pension would be subject to a tax charge on leaving the UK. People who get QROPS transfer their pensions to HMRC approved schemes in foreign jurisdictions that appear on the QROPS list. This is a list of schemes that meet with the criteria of being run, regulated and treated for tax purposes as a pension scheme in a foreign jurisdiction. The importance of choosing a scheme that is on the list cannot be stressed – if a UK pension is transferred to an unapproved foreign scheme, HMRC will be entitled to claim to tax on the amount, in addition to levying a significant penalty.

It does not matter that the tax treatment is more favourable in the foreign jurisdiction you choose. Some jurisdictions do not tax pension withdrawals at all. Tax treatments of pensions vary enormously between countries, and it is important to receive professional advice from a qualified adviser who understands the implications of moving your money to a variety of different locations. You need to take into account not only the tax regime of the country that will be hosting your QROPS, which may tax gains the fund makes, but also the country in which you will receive the benefits of the pension.

If you make any withdrawals from your fund within the first 5 years, the administrators of the scheme must comply with reporting requirements and inform them how much you are taking out of the fund. After the 5 year period is up, the pension falls outside the remit of HMRC, and you merely have to comply with the rules and regulations of the QROPS host country and the country in which you live, if different.

Take charge of your money

The government’s Pensions Simplification Initiative introduced QROPS to give people more control over their money, and to make choices about their investments. The same initiative loosened the tight restrictions around Self Invested Personal Pensions (SIPPs), broadening the asset classes available for such schemes. However, there are still schemes abroad which allow more flexibility and freedom about what you can invest in and how the fund can be managed. Your QROPS adviser should be able to give you information about which QROPS jurisdiction offers the solutions you require.  

Your money when you want it

The UK pension system forces members of pension schemes to purchase an annuity when they reach the age of 75, so they have an income for the rest of their life and, supposedly, are not so dependent on the state. If you live abroad and do not want to take that step at that stage of your life, you could consider transferring your fund to a QROPS in a jurisdiction that does not require this. Perhaps you intended to withdraw a lump sum later to help with grandchildren with school fees of to get them onto the property ladder. In fact, foreign QROPS are generally much more flexible in the way in which they allow investors to make withdrawals – sometimes with careful planning an investor can have access to the whole of his or her fund as a tax free lump sum.

Inheritance rules

The decision to transfer your pension fund to a QROPS could also be part of your inheritance tax planning. Some jurisdictions do not make a charge to QROPS on the death of the member, and allow the funds to be transferred tax free to a person of the member’s choice. By comparison, there are very few transfers which do not attract inheritance tax.

Currency fluctuations

Of the hundreds of QROPS on HMRC’s list of approved schemes, there are plenty of options to choose from. Accordingly you can pretty much hold your QROPS in whatever currency you like.

Are there any drawbacks?

Of course, there are some drawbacks to take into account when you are considering whether to transfer your pension to a Q.

First, check your documents carefully and make sure that your current UK pension scheme trustees will permit a transfer without losing benefits from the scheme. Also, if you have an occupational scheme from a former employer, you may not be able to transfer the fund if you have already started to take benefits out.

QROPS trustees and administrators charge a fee for their services, so check how much these are, and whether they offer a good deal on the rates you are currently being charged.