Qualifying Recognised Overseas Pension Schemes (QROPS) enable individuals who have left the UK to transfer their UK pension benefits into a more flexible and often lower tax regime.
Changes introduced by HMRC on 6 April 2006, a date commonly referred to as 'A Day', mean that anyone wishing to transfer their UK pension benefits overseas can do so, so long as their overseas pension scheme is a QROPS, otherwise any such transfer would be subject to substantial HMRC exit charges.
To be recognised as a QROPS the scheme must demonstrate that it satisfies criteria set out by HMRC. This ensures that the characteristics of the overseas scheme remain similar to those of a UK Registered Scheme in terms of being recognised for tax purposes, having certain restrictions in terms of pension ages and lump sums and, where the country in which the pension scheme is established operates a regulatory regime, the scheme is duly regulated.
A properly constituted QROPS will typically provide benefits such as increased control over assets, flexibility in the withdrawal of benefits, greater lump sum potential, no requirement to purchase an annuity and the ability to pass on a greater proportion of any residual funds on the death of the scheme member.
There are a number of jurisdictions that offer QROPS but HMRC tightened their QROPS requirements with effect from 6 April 2012, which may restrict the options going forward. For example, HMRC removed 99% of the schemes registered in Guernsey from its published QROPS list shortly after 6 April. Many hundreds of QROPS in over 40 countries do, however, still remain on the list. Expert advice is therefore required to find the best jurisdiction to meet the requirements of individual clients, having regard to their chosen country of residence and their pension objectives.
When selecting a QROPS jurisdiction for their clients, advisers will typically be seeking to achieve greater flexibility and/or lower taxation and they will also be looking for the jurisdiction to have a dedicated pensions regulator. Favoured jurisdictions therefore tend to be low tax jurisdictions that have good pension legislation and robust regulation. Countries such as the Isle of Man and Malta score highly on these points, although for clients moving to far away jurisdictions such as New Zealand, significant advantages may be gained by transferring to a QROPS in the client's new home country.
Once the optimum jurisdiction has been identified, careful consideration also needs to be given to the choice of pension provider. Advisors should look to see which providers build long-term relationships with their clients, especially those that span generations, as this kind of longevity and stability helps to preserve the value and flexibility of the assets the pension members have worked hard to build up. Clients with higher value pensions will often favour providers that offer bespoke trust arrangements that allow them to be co-trustees and co-signatories to all transactions. These bespoke trusts also help avoid the problems of QROPS being tainted by the actions of other scheme members and the loss of direct control that is associated with the use of mass market master trust arrangements, and they typically cost no more to administer.
Pension benefits can make up a significant part of a client's assets, so those advising clients who are leaving, or have left the UK, should consider whether a QROPS transfer could benefit their client and should take advice from a QROPS specialist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
