I’ve recently discovered that expats could be eligible for a QROPS, but what does “QROPS” mean?
QROPS stands for “Qualifying Recognised Overseas Pension Scheme”.
A QROPS is a pension scheme which is not based in the UK, but meets specific criteria set by the HMRC in the UK.
If you live abroad and wish to transfer a UK private pension to a foreign scheme, it must be classified as a QROPS, otherwise you could face significant penalties of up to 55% of the value of your pension pot.
The HMRC reviews offshore pension schemes and decides which pensions qualify to become a QROPS and regularly updates a list which contains all pensions which qualify as a QROPS.
I have a UK pension and live abroad. I was wondering, what is a QROPS scheme exactly?
A QROPS is a Qualifying Recognised Overseas Pension Scheme. For an overseas scheme to be deemed as such, it must satisfy criteria stipulated by HMRC.
A QROPS is run by a trustee or trustees in a jurisdiction outside of the UK (regularly Malta, Gibraltar or the Isle of Man owing to the trusted regulatory environments and general stability of these countries). It ‘qualifies’ in that; HMRC agrees that it is similar enough to UK pension schemes that UK pension holders can transfer their pension pot over. This is in order that they can live abroad as an expat without their pension being subject to UK rules.
In some cases, scheme sanctions and unauthorised transfer fees may be charged if the destination pension scheme is not a QROPS.
I’ve heard the UK government has introduced an overseas transfer charge of 25% for pension transfers to QROPS schemes, but what is the overseas transfer charge?
From 9th March 2017, any pension transfers from the UK to a QROPS may be subject to an overseas transfer charge of 25% of the total value of the transfer amount.
The overseas transfer charge is a new tax aimed at stopping people from exploiting tax loopholes enabling them from transferring pension funds out of the UK to avoid UK tax.
The overseas transfer charge will only affect pension transfers which are requested on or after 9th March 2017.
In the simplest terms, the overseas transfer charge will not apply for any pension transfer that meets the following criteria:
- The person transferring the funds is tax resident in the same country that the QROPS is based
- The pension transferring the funds is a tax resident in the EEA and the QROPS is based in a country within the EEA, including Gibraltar.
There are other exceptions, and we have created a detailed guide covering the overseas transfer charge which explains things in more details and includes all of the exemptions, as well as the circumstances where the charge will have to be paid.
I believe the UK State Pension payment has recently changed. How much is the UK State Pension per week?
The full new State Pension is £155.65 per week.
However, the amount of UK State Pension you will receive will depend on three factors. Firstly, when you were born; secondly, where you live and; finally, how much you have paid through national insurance contributions.
If you reached State Pension age after April 6th 2016, you qualify for the new State Pension rules. Under these new rules to receive any State Pension, you would need to have 10 or more years qualifying years of National Insurance contributions. Depending on your National Insurance record, the amount of State Pension you receive will go up or down.
Your country of residence will determine whether your State Pension payments will increase. For example, if you now live in Australia, Canada, New Zealand or South Africa, while you can still claim your State Pension, it will be frozen at the rate when you arrive in your new country of residence, or when you first become eligible to receive the State Pension.
For people who reached State Pension age before April 6th 2016, the old rules will still apply which means that the maximum you can receive is £119.30 per week. You will need to have 30 full years of National Insurance contributions to qualify for the full State Pension.
I have a UK based private pension, but can I transfer my pension elsewhere?
Yes. But whether should or not is a different matter.
Transferring your UK pension abroad is generally only advisable if you are absolutely sure that you do not want to return to the UK. If you might become a UK resident in retirement, then you must consider very carefully whether you want your pension to be administered offshore (often carrying transfer costs and higher ongoing costs).
Residents in the UK will pay UK taxes on their pension no matter where the pension is held. Equally, residents abroad will pay UK taxes on pensions if the pension remains in the UK.
Assuming you are sure you wish to retire abroad, your pension is most likely to be accepted as such where you decide to settle if it is ‘in consideration of past employment’. Many countries make a distinction between this type of pension and a SIPP for example. You may be subject to unexpected taxes from the country in which you choose to be a resident unless you plan ahead.
A successful pension transfer depends on:
- Having a good pensions adviser, properly qualified to assist in international transfers.
- Choosing the right jurisdiction based on your planned country of residence
- Choosing the right pension type and trust
- Understanding the taxes you must pay
Under what conditions should I consider transferring my pension offshore?
Will you ever return to the UK in retirement and become a resident? If the answer is yes, then you should not consider transferring you pension offshore.
However, if you will be retiring abroad, even if it is still a little way off, you may wish to consider transferring your pension overseas.
Typically, your pension will be held in a trust in a jurisdiction which has DTA or Double Taxation Agreement with the UK. This agreement should allow the jurisdiction in which your pension is held to levy tax instead of the UK. Depending on where you are resident (it may not be the same country as the QROPS), the QROPS jurisdiction might also pass taxation rights onto your country of residence. This is fair as you are likely to be using government services and facilities in your country of residence.
You might want the flexibility to change the country in which you are resident and so, in transferring your pension, you may be aiming to keep your options open. The country in which your QROPS arises should, therefore, be chosen on the basis that it has numerous DTAs so that you are only taxed once and not in both the QROPS jurisdiction and your country of residence.
If you transfer your pension overseas, then you can protect from all UK taxes. This includes death benefit charges and inheritance tax.
Lastly, and this may factor as less important than which country you want to retire to, QROPS often have a wider range of investment options and trusts may offer a little more flexibility than in the UK.
I live abroad, but don’t know what I’m entitled to regarding the state pension. Do I qualify for a British State Pension?
A British state pension is afforded to those who have paid in the required amount of National Insurance during their lifetime no matter where they live. You may also be eligible to pension benefits based on contributions to other countries’ welfare systems (e.g. those in the European Economic Area (EEA) and Switzerland).
If you have already started receiving you UK state pension when you decide to move overseas, you can continue to receive payments.
The UK state pension increases each year but you will not receive this increase unless you are in a country that has a social security agreement with the UK. This includes the EEA and Switzerland but excludes countries like Australia.
You must choose one country and respective bank account to which your pension will be paid and must make your initial claim within 4 months and 4 days of the state pension age.
I have previously lived in the UK and paid into a UK pension, however, I have moved to Australia and want to know: can I transfer my UK pension to Australia?
Yes, it is possible to transfer your UK pension funds to an Australian pension scheme.
However, it has become a lot more difficult to transfer a UK pension to Australia due to the tightening of the QROPS rules in recent years.
To be able to transfer your UK pension to Australia without incurring penalties and additional charges you would need to ensure that you are transferring the funds to an Australian pension scheme which qualifies as a QROPS.
In short, this means that the Australian scheme you are transferring your pension to must meet UK pension rules – and there are very few Australian schemes which meet these very specific criteria.
You must also ensure that the individual and company is authorised to conduct such a transfer and it is highly advisable that they are independent and therefore able to offer you advice about whether a transfer is actually a good idea, information which will depend on your personal circumstances.
It is essential that, as with any investment, you have a clear and thorough understanding of any QROPS fees, charges and commissions which could be payable to the adviser as these can have a seriously detrimental effect on the real value of your pension and therefore inhibit its future growth.
We have a detailed article about QROPS in Australia and transferring UK pensions to Australian schemes which should help explain in more details, however you should never make a decision about investments without seeking independent advice.
If you would like us to arrange for a free consultation with an independent adviser who is able to discuss the full pros and cons of transferring UK pension funds to Australia, enter your details using the form.