If you’re hoping to retire abroad it’s important that you take some time to learn a little about QROPS, and how they could potentially help you better enjoy and manage your pension fund once you’re living abroad.
This article has been written to cover the basics of QROPS, so you get yourself up to speed before perhaps taking the time to investigate the appropriateness or otherwise of these schemes with relation to your own pension and retirement position.
The term QROPS stands for Qualifying Recognised Overseas Pensions Scheme. Like SIPPs and QNUPS these are just a different type of pension – and they have full HM Revenue and Customs backing. They are specifically designed to allow you take your pension fund out of the UK – which of course means you can potentially legitimately avoid paying UK-levied pension taxes once you’ve retired overseas. However, this is just one potential benefit of these schemes – read on to discover how else they could potentially benefit you…
First things first…it’s important to note that this article does not constitute advice – and when it comes to potentially transferring your pension you have to seek qualified advice from an independent financial adviser to ensure that any action you take is the right thing for your wealth…
How QROPS Work
When a financial services company is creating and setting up a QROPS, they register it outside the UK. Then, when it has been accepted by HMRC, it is freed from any UK-based pension taxes and instead is governed by the rules and the tax laws in the country where it is registered.
This means that any pension funds that subsequently get transferred into the QROPS become liable for the taxes in the country where the QROPS is based, and not the taxes in the UK. However, where you eventually retire and begin enjoying income from your QROPS also has a bearing on how much tax you may pay on your retirement savings – so you need to explore these areas carefully with your financial adviser to ensure your QROPS is positioned as tax advantageously as possible for you.
Theoretically, as long as the QROPS has been registered in a country with lower restrictions and taxes than the UK, anyone who transfers their pension fund into it will benefit from them.
The Main Benefits of QROPS
As a result of the special ‘relationship’ between QROPS and HMRC, these are the main benefits you might be able to enjoy (note, personally accessible benefits will depend on everything from where you retire to how you draw an income from your QROPS for example, which is why it is so imperative that you seek individual financial advice from a qualified financial adviser before you make a decision about where or how to invest):
• Your payments and withdrawals may be taxed at a lower rate compared to the UK
• You can enjoy greater control of how you use your fund and how it is managed and invested
• Your pension may be paid in your local currency
• Your beneficiaries are not liable for UK taxes should you pass on any funds remaining after your death
• You do not have to buy an annuity with your QROPS pension
• You’re free to pick a QROPS registered in any country, not just the one you plan to retire to
Transferring Your Pension into a QROPS
If after researching QROPS you determine that a transfer may be the right thing for you to do for the future health of your retirement wealth, step one is to consult an independent financial adviser with experience in dealing with QROPS. They will be able to help you pick the best QROPS for your own personal situation and requirements, and they will help make the transfer run smoothly.
Working with their expert assistance, once you’ve picked your QROPS and given your adviser the go ahead to help you handle your financial affairs, they will most likely assist you in consolidating all your pensions assets – which can help make the transfer run much quicker and smoother.
Once the transfer has been started, it should take about two or three months for everything to be completed.
However, it’s important to know that you cannot enjoy the benefits of your QROPS from day one. Instead, for the first five years of your QROPS being set up you will still be liable for disclosure of activity in the UK and perhaps liable to UK-based taxes levied against pensions. Then, once those first five years are up, you should be finally freed from the UK and instead bound by the tax laws governing your QROPS, and any local taxes in the country where you’re living abroad.
Potential Problems with QROPS
The potential benefits and savings you can make with QROPS can seem very advantageous, but it’s important that you never rush into anything when it comes to your future financial health. Remember – you must always take qualified financial advice and note, there are times when transferring to a QROPS is the wrong decision. What’s more, QROPS can occasionally potentially ‘go wrong.’
If your QROPS gets its backing revoked by HMRC, which can happen because HMRC deems that the QROPS has stopped operating within their agreed boundaries, then any funds invested in the QROPS will lose the special privileges given to them by the agreement of HMRC. At this point they can become liable for any penalties usually levied against transferring pensions outside of the UK.
The way to avoid this risk is to use the advice of an experienced financial advisor who can recommend proven and trustworthy QROPS providers.
Conclusion on QROPS
If you’re planning your retirement abroad then a QROPS can help you get a better return and give you more control over your pension, compared with leaving it in the UK. However, you should always make sure you seek advice and help to do this so you don’t find yourself facing problems or penalties down the line.
This article was written with information supplied by Expat Pension Providers Ltd., a leading provider of independent financial advice relating to QROPS.