QROPS are tax-effective schemes for UK pension holders who are either moving – or have moved – abroad.
Short for Qualifying Recognised Overseas Pension Scheme, QROPS are frequently called ‘offshore’ pensions, as they are based in financial centres outside the UK such as the Isle of Man or Malta.
There are over 3,000 schemes now available in 42 countries; so the choice is huge.
As well as the ability to enjoy an increased, tax-free lump sum when you start your retirement, QROPS transfers are popular as they offer greater investment choice, better provisions for succession planning and increased pension income.
Yet an often overlooked advantage lies in how they streamline the pension income process itself.
Receiving pension income abroad
As UK pensions are designed for UK residents, they are paid in pounds sterling.
If you are already living abroad, you will know that when your income is in one currency, yet you need to pay expenses in another, your standard of living is greatly affected by foreign exchange rates.
For example, if you retired to Thailand in 2008 on a sterling pension, the amount of baht you receive would have reduced by almost 25% by 2013.
Comparing this to the 10% reduction in the value of the US dollar against the baht, this is particularly disappointing.
This is because governments and central banks do not manage currencies against sterling – they are managed against the US dollar.
Whilst it is impossible to control this, you are certainly able to manage the risk.
How a QROPS helps
QROPS provide more flexible currency options and can be established in any major currency you need (including the dollar, euro and baht – for example).
This means your pension assets are automatically converted into the currency of your choice – so you can receive income in your local currency without having to time transfers to make the most of exchange rates.
It also means you will not have to pay expensive exchange rate costs.
Both these results can make a substantial difference to your life in retirement, as it means you will not suffer alongside a depreciating pound, or ever lose money in the currency exchange process.
Flexibility for life
In addition, whilst a UK pension will always pay out in sterling, with a QROPS, it is usually possible to switch between currencies.
This means you can set it up your scheme in euros but change it at a later date – to dollars, for example, if you expect the euro/dollar exchange rate to improve in the near future.
Similarly, if you do return to the UK, you can switch your income back into sterling.
To learn more about the currency benefits inherent in QROPS, you should speak to a regulated, international financial advisor.