QROPS – or Qualifying Recognised Overseas Pensions Schemes – allow a UK pension holder to transfer their UK pension schemes abroad if they leave – or plan to leave – the UK.
They offer significant tax and flexibility benefits, including protection from UK taxes, the ability to consolidate multiple pensions into one efficient fund and take a larger tax-free lump sum.
Yet if the scheme member changes their country of residency, they may find it beneficial to move their QROPS into another jurisdiction.
This is where a multijurisdictional QROPS is beneficial.
They allow the fund to be transferred between jurisdictions without incurring additional charges, so the QROPS always matches the member’s requirements.
As well as the possibility of changing jurisdiction, QROPS holders may also need to adapt to legislation changes – either where they currently live or where their scheme is located – without being unfairly penalised with large transfer fees.
Third country QROPS
‘Multi-jurisdictional’ schemes enable UK expatriates to transfer their pensions from country to country as and when it is needed, without being charged additional fees. They may be initially set up in the member’s country of residence, popularly in countries like Ireland and Australia.
But if the pension holder moves, this could lead to high taxes to receive the income in the new country of residence.
Third country QROPS are those set up in independent jurisdictions which provide tax efficient benefits for many different countries.
Malta and Gibraltar are two of the most popular choices, as the following information highlights.
Malta vs Gibraltar
Malta enjoys a long-standing relationship with HMRC, and also boasts a long-standing history of financial security, EU membership, and over 70 Double Taxation Agreements (DTAs) – which means a person would never have to pay income tax on their pension income twice.
The island has therefore become one of the leading jurisdictions for QROPS customers, although in the case that there is no DTA, a QROPS holder can be charged up to 35% in taxes at source.
In these circumstances, it may be beneficial to base the QROPS in Gibraltar.
Gibraltar has been a long QROPS favourite, enjoys conversation with HMRC on legislation, and again, has a long-standing history as a secure financial destination.
In addition, Gibraltar only changes a low, 2.5% tax on pension income – preferable to Malta’s 35%.
Essentially, a member’s country of residence and their taxation liabilities will play a big part in the decision between a multijurisdictional QROPS, or a third country QROPS in either Gibraltar or Malta – making seeking professional advice from a regulated independent financial advisor of paramount importance.
It is worth noting that many QROPS providers have also begun to launch multi-jurisdictional products with the prediction that pensions will soon become a pan-European offering in the next few years (rather than a national one).
The portable offshore pension, i.e. multijurisdictional QROPS, will then become the basis of new retirement wrappers that comply with cross-border legislations across the European Union – and potentially the wider European Economic Area too.