A QROPS Pension Transfer is the transfer of a UK pension into a Qualifying Recognized Overseas Pension Scheme (HMRC Approved Schemes).
If you are leaving the UK or are already living abroad and have a UK Pension Plan, you may qualify for a QROPS Pension Transfer.
The QROPS Pension Transfer scheme needs to be an HMRC approved scheme and generally, individuals prefer to transfer their pensions to a stable offshore jurisdiction with similar financial principles to the UK (e.g. Channel Islands).
Who Qualifies for a QROPS Pension Transfer?
In order to qualify for a QROPS Pension Transfer you need to be a non-tax resident for 5 years. You can make a QROPS transfer from 12 months before you leave the UK. Once you have been a UK non-tax resident for more than five years your QROPS will no longer be regulated by HMRC. The QROPS is then subject to the laws of the relevant overseas jurisdiction where your funds now reside.
Read further below about the jurisdiction of your chosen QROPS and why it should be carefully considered.
What are the benefits of a QROPS?
QROPS benefits can be summarized as follows:
· Avoidance of IHT on the pension fund.
· The ability to leave 100% of your pension to a nominated beneficiary.
· No need to purchase an annuity (although this is still possible)
· Protection against future creditors.
· Improved investment flexibility
· A 25% tax free lump sum.
· Choice of currency.
· Take income more tax efficiently from your pension.
· In addition, you are no longer required to purchase an annuity by 75, or face an 82% tax charge!
There are various options regarding investment flexibility of your QROPS Pension Transfer scheme. Some schemes allow you to choose the investments yourself, while others require a financial institution to choose the investments on your behalf. It all depends on your requirements and where you setup your QROPS.
In most instances the benefits of a QROPS Pension Transfer, make the transfer of a pension to a secure offshore jurisdiction an absolute “no brainer.”
Yet, it is extremely important to note in some of the older pension plans, especially final salary scheme plans, it may not be in your best interests to transfer your pension to a QROPS. This however, should be discussed with a suitably qualified QROPS adviser. Even if you have a final salary scheme pension plan, you should seek a professional opinion on whether or not a QROPS is beneficial.
The Safety of Your Pension in a QROPS
There are two issues to consider that impact the security of your pension. Firstly the jurisdiction of the QROPS and secondly, the underlying funds in the QROPS.
1. QROPS – Jurisdiction
A major reason for choosing the Channel Islands as a jurisdiction for your QROPS Pension Transfer, is due to the financial stability and security that they offer. The Channel Islands are extremely regulated and have strong investor principles, similar to the UK.
Thus, the Channel Islands are a safe and secure jurisdiction with a strong financial history.
2. QROPS – Underlying Investments
The greatest risk with a QROPS is the choice and performance of the underlying investment funds. However, while your fund is in the UK it is subject to the same risk. Many pension holders in the UK have seen the values of their pensions dramatically decline as the underlying funds have underperformed.
Although QROPS schemes do not have capital protection or capital guarantees, it is possible invest in funds that offer this. Thus, deciding on the underlying funds is an extremely important decision. It is important to note that a QROPS Pension Transfer, offers greater investment flexibility and fund choice.
What is the Cost of a QROPS?
When you consider the benefits of a QROPS the costs are not a significant factor. The fact that you can pass on your pension to your beneficiaries should something happen to you, is a major reason that cost is not a factor. It is better that your beneficiaries receive something rather than nothing.
That being said, the cost of a QROPS is normally made up of a fixed cost as well as a variable cost. Thus, the larger the value of the pension being invested, the lower the costs are as a percentage. You should expect a good QROPS scheme to cost around 2% p.a. on the value. If you consider that this cost is generally already recovered in the tax saving of a QROPS, it really proves the benefits of a QROPS Pension Transfer, and why it is often a “no brainer.”
How do I go about using a QROPS Pension Transfer?
Transferring a UK pension or “frozen” UK pension into a QROPS is a lengthy process. It is one that you will need to do in consultation with an accredited financial adviser. You cannot do a QROPS on your own as pension providers will only work with an accredited financial institution.
If it is in your best interests to move your pension, the next step is to decide on the QROPS jurisdiction and begin setting up the QROPS structure. Once the QROPS pension structure is setup, the existing pension company will transfer your pension to the HMRC approved QROPS Pension Plan.
QROPS Pension Transfer – Going Forward…
This article provides a brief overview of a QROPS Pension Transfer, looks at what a QROPS Pension transfer is; the costs and benefits as well as the procedures. However, it only offers a broad overview.
Please read more at UKPensionsAdvisor.co.uk.
QROPS Pension Transfer – the transfer of a “frozen” UK Pension to an approved scheme.