QROPS for Expats: The Best Way to Get Flexible Access to Retirement Savings?

When you live outside the UK, accessing your UK pension fund can be painful. It's also pretty galling when your hard work results in building a pension pot that adds up to a very comfortable lifestyle, but also incurs taxation in a country you don't even live in anymore. Don't get mad. Get QROPS. In this guide, you'll learn about QROPS, when transferring your UK pension to an overseas scheme makes sense, and just how a QROPS could help you forget about the pension lifetime allowance for good and keep more of your retirement money out of the UK tax man's hands.

What is a QROPS?

QROPS is an abbreviation for Qualifying Recognised Overseas Pension Scheme. A QROPS is a pension scheme which is registered in a country outside of the United Kingdom but allows beneficiaries to receive pensions from UK sources.

QROPS were first established in 2006. The UK implemented the scheme at least in part as a direct consequence of pressure from the EU for all member states to respect “freedom of capital movement” legislation.


Who is eligible for QROPS?

expat taking in the view overseas

To become a member of a QROPS you’ll need to:

  • Be aged between 18 and 75;
  • Have lived outside of the UK for five consecutive fiscal years;
  • Be either a British national who lives abroad or a non-British national who has previously worked in the UK and has contributed to a UK personal or corporate pension plan;
  • Have a pension fund in excess of £30,000 to make a transfer cost-effective (and it’s possible to top-up your fund to meet minimum transfer values if necessary).


Who regulates QROPS?

Good question. There’s a common misconception that because HMRC will only permit you to transfer your UK pension to an approved scheme the UK Government has some kind of regulatory authority… but it doesn’t.

If a pension scheme is to be classified as a QROPS by HMRC, it will generally need to have similar characteristics as UK pension schemes. One example might be that the scheme does not allow access before age 55—a requirement familiar to domestic pensions in the UK.

Pension schemes from various countries that believe they meet the necessary HMRC requirements to qualify as a recognised overseas pension scheme (ROPS) can ask for inclusion on a government-managed list of QROPS.

To remain a QROPS, the scheme must comply with HMRC requirements, including reporting any further transfers (known as benefit crystallisation events), so that HMRC can consider whether they fall within UK member payment provisions (in short, whether they can charge you tax for them).

That is the full extent to which HMRC takes a hand in deciding which schemes are suitable or safe. Each individual QROPS is actually regulated by the jurisdiction in which it was established.

So, for example, if you choose to transfer your pension savings into a QROPS based in Gibraltar, the Gibraltar Financial Services Commission will be responsible for regulating it. This means that there is some variation in the level of protection available depending on where you choose to open an account. It also means that you should do your research before committing to any one specific jurisdiction or provider.


Do you need to move to a QROPS in your new Country Of Residence?

Interestingly, no. And not every country has a QROPS scheme. So long as you aren’t a UK tax resident, you can transfer your UK pension to any QROPS scheme in any country. There just may be tax implications in the form of an overseas transfer charge (OTC).


About the OTC

Once HMRC cottoned on to the fact that people were taking out QROPS purely as a tax planning strategy, they soon put a stop to it with the introduction of the OTC. It applies a 25% tax charge on transfers to QROPS when the following exclusions aren’t met:

  • It’s an employer scheme
  • The member is transferring to a pension in a country in which they are resident
  • The scheme and the resident country are both in the EEA


The Pros and Cons of QROPS

Always a tricky point to address in a generalised way; financial advice is never a one-size-fits-all scenario. But, in a highly generalised fashion, we shall sum up the main pros and cons of QROPS for expats below.


The main benefits of QROPS

Gibraltar - home of the first QROPS

The main benefits of a QROPs over continuing to keep your pension funds in the UK is the potential for greater investment freedom, ease of access and the opportunity to minimise your tax liability depending on your country of residence, your tax status and your own set of personal circumstances.


Key pros:

  • More favourable tax treatment;
  • Access a wider range of investments;
  • Have more control and choice in where you invest;
  • More flexibility in estate planning;
  • Drawdown pension in your local currency;
  • Potentially achieve greater protection (scheme dependent);
  • Avoid the dreaded lifetime allowance (LTA).


More about the LTA and QROPS

Deserving of far more than a bullet point – one MAJOR draw of a QROPS is that if your pension pot is approaching the LTA, you can avoid or minimise penalties by transferring to a QROPS.

If your pension pot already exceeds the LTA, then upon transfer to a QROPS you’ll be charged an excess tax charge of 25% on the surplus only. This will be deducted from your transfer value and paid directly to HMRC by the transferring scheme.

If you move back to the UK from overseas, you can transfer your pension back to a UK scheme, and if you’ve not been receiving UK tax relief on your contributions you can apply for a lifetime allowance enhancement factor to take account of this.

Always seek professional financial advice so you’re completely informed about your individual circumstances.


Are there drawbacks associated with QROPS?

There are, of course, some potential pitfalls when transferring your UK pension to a QROPS. It’s important to consider:

  • Potentially high fees;
  • Exposure to tax liabilities in your country of residence;
  • Lack of effective regulation;
  • Your QROPS scheme could potentially be delisted – and you should speak to your IFA about what this could mean for you.


Make Sure You Get Qualified, Independent Financial Advice About Pension Transfers

Deciding whether to transfer your UK pension, and then deciding whether a QROPS is the right option for you, are huge financial decisions. Getting the right advice surrounding how a pension transfer could impact your future is essential – and specialist financial advice for expatriates is hard to come by.

Trust us with your financial future – contact us today and we’ll get started on helping you find the best way forward to build the retirement you deserve.