QROPS Pensions Explained

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Written By Mostafa Moradi

Qualifying Recognised Overseas Pension Schemes (QROPS) are offshore pensions that can come with tax and financial advantages for expats.

QROPS are pensions that are ‘qualifying’ because the overseas providers report to HM Revenue & Customs (HMRC) when retirement savers take benefits for 10 years after the start of the scheme.

They are ‘recognised’ because they meet a list of rules for pensions laid down by HMRC.

Expats have to be careful about the QROPS being recognised as the providers self-certify that they meet the rules to go on the HMRC QROPS List, but sometimes the providers misinterpret the rules.

This means the schemes are not QROPS and if the recognised rules are broken, this can end in tax penalties for investors.

Tax advantages

QROPS are pension options worth considering for British expats and international workers who have pension rights in the UK.

They allow retirement savers leaving the UK to move their pensions with them.

QROPS have tax advantages for retirement savers if the country where they live tax pension income at a lower rate than in the UK.

Onshore pension benefits are paid net of tax, where QROPS are paid gross with tax paid according to the rates in the country where the retirement saver now lives.

QROPS come in different packages for retirement savers. Some are designed for small pot pensions of less than £100,000, while others are aimed at investors with larger funds.

One by-product of QROPS rules is that the pensions fall outside of the UK inheritance tax regime and are not included in calculating the net worth of the deceased’s estate.

Switching to a QROPS

Around 650 QROPS are available in 35 financial jurisdictions worldwide.

That means many popular expat destinations do not have a QROPS in the country where they live.

For retirement savers in countries like Thailand or The Philippines, ‘third party’ QROPS are an option. A third party QROPS is based in one country, but allows the saver to live elsewhere.

This is especially useful for expats moving between countries as they can transfer their UK fund to a third party QROPS and then live or work where they wish.

These QROPS are available from providers in Malta, Gibraltar and the Isle of Man, among others.

Planning a QROPS transfer requires expert knowledge of cross border and double taxation agreements between the country where an expat lives, where the QROPS is based and the UK.

Expats seeking a QROPS transfer should consult an IFA who is regulated to give pensions and investment advice in the country where they live.