If you have a UK pension and have now moved away from the UK, then you will want to decide if should transfer your pension to a QROPS in your new country of residence.
When used correctly, QROPS can present the ideal solution to transfer your UK pension to your new home. Unfortunately however, QROPS have also been mis-sold and used for a number of scams, and I’m sure you will find a list of horror stories with a quick google search.
QROPS are favoured by offshore financial advisers as they will pay large commissions to the adviser, a practice which is now banned in the UK. The regulation of QROPS also tends to be much less strict than the UK, which doesn’t provide any benefits to the end customer.
This article should enable you to decide whether you should transfer your UK pension to a QROPS or if there is a better option available.
What is a QROPS
A QROPS is an abbreviation of the term, Qualifying Recognised Overseas Pension Scheme. It is an overseas pension scheme that HM Revenue & Customs (HMRC) recognises as eligible to receive transfers from registered pension schemes in the UK.
To qualify as a QROPS the scheme must meet the requirements set by UK tax law, such as being available to residents in that country and not being accessible before age 55 unless under special circumstances.
**You can only transfer to a QROPS in Australia once you reach age 55 as Australian Superannuation rules allow access before age 55.**
The QROPS regime was originally proposed to allow individuals who had worked in the UK, the ability to transfer their UK pension to their new country of residence.
However, over time the government saw that QROPS were not being used for their intended purpose, and many people were transferring to QROPS in countries with no connection to the individuals, simply to try to avoid UK taxes. This why the Overseas Transfer Charge was introduced.
A transfer of a UK pension to a QROPS will have 25% tax deducted (overseas transfer charge), unless you are resident in the same country where the QROPS receiving your transfer is based.
The transfer will also be exempt if you are resident in a country in the European Economic Area (EEA) and the QROPS you are transferring to is also based in an EEA country.
Tax on QROPS
The way the QROPS is taxed will depend on the tax rules where the QROPS is based, they are not all the same.
Withdrawals from a QROPS will also be taxed in line with the tax rules in your country of residence. Therefore, you could be taxed twice on your withdrawals.
The QROPS will also be subject to UK tax rules for 10 years after the transfer is made. If you become resident in the UK again, withdrawals from the QROPS will be subject to UK tax rules.
There is also the risk that if the initial transfer is not subject to the 25% overseas transfer charge, but you change your country of residence within 5 years, then the transfer could become subject to the 25% charge at that point.
QROPS in Malta, Gibraltar & Isle of Man
The most common jurisdictions where QROPS are registered is Malta, Gibraltar and the Isle of Man, which are all within the EEA.
QROPS in Malta – usually pay a 30% tax free lump sum with the remainder subject to Maltese income tax up to 35%.
QROPS in Gibraltar – usually pay a 30% tax free lump sum with the remainder subject to Gibraltar income tax at 2.5%.
QROPS in Isle of Man – usually pay a 30% tax free lump sum with the remainder subject to Isle of Man income tax at 20%.
Don’t forget, the withdrawals are also subject to tax in your country of residence.
You can find the full list of QROPS on the HMRC website here
Cost of QROPS
Due to their perceived complex nature, the fees and charges for QROPS tend to be much higher than a UK based pension, and you often will not be able to set up a QROPS without using a financial adviser.
The typical fee structure for a Malta, Gibraltar or Isle of Man QROPS, set up through a financial adviser is as follows:
The QROPS provider’s set up and annual fees normally range from £800 to £3,000 per year.
The QROPS will normally use an offshore investment bond wrapper which has another set of fees for around 1.25% per annum.
Then underlying investment fees are commonly 1.5% to 2% per annum for offshore funds recommended by financial advisers.
All the fees and charges added up can make QROPS incredibly expensive which minimises any potential benefits or tax savings.
QROPS Alternative – SIPP
Instead of transferring your UK pension to a pension scheme in another country, you could consider transferring your pension to another UK pension scheme that is suited to Expats and non-UK residents.
MyExpatSIPP is a self invested personal pension plan (SIPP) designed especially for Expats and non-UK residents with a UK pension.
Everything is managed from your online account so you don’t need to worry about sending forms back and forward to the UK, and there no need to use a financial adviser.
The ready-made investment portfolios make investing easy and mean you don’t need to be an expert.
When it comes to making withdrawals from your SIPP, if you live in a country that has a double taxation agreement with the UK, then we can usually pay your withdrawals without any UK taxes deducted. We can even pay your withdrawals directly into your local (non-UK) bank account.
Should I transfer my UK pension to a QROPS?
Hopefully you should now have all the information you need to decide whether a QROPS is right for you, or if you would be better utilising the benefits of a SIPP.
Get in touch to find out more about transferring your UK pensions to a SIPP.