When should I use a QROPS? Qualifying Recognised Overseas Pension Scheme are foreign pension schemes that are recognised by HMRC and meet UK tax legislation requirements.
Where are QROPS based?
QROPS are now typically based in Malta. Common retirement destinations such as France, Portugal and Spain do not offer a recognised pension scheme by HMRC. Therefore, to satisfy the rule of being in a recognised scheme that is also based in the European Economic Area (EEA), Malta has become the default option for a QROPS.
Maltese regulators ensure the QROPS abides by HMRC’s rules and procedures, which means it retains it’s qualifying status.
25% Overseas Transfer Charge
As of 9 March 2017, certain transfers were subject to the 25% overseas transfer charge. A transfer would trigger the 25% charge, unless:
- The QROPS is in the EEA and the Member is also resident in a EEA country.
- The QROPS and Member are in the same country or territory. This is a limited if negligible part of the market.
- The QROPS is an employer-sponsored occupational scheme, overseas public service pension scheme or a pension scheme established by an international organisation.
For example, if you were resident in the US and your QROPS provider was based in Malta, you would automatically receive a 25% charge on the value of your pension being transferred. This has made a QROPS transfer redundant in many cases.
Are QROPS expensive?
Generally, QROPS are a more expensive alternative to a UK SIPP. For example, the cheapest available is STM. They do not charge an establishment fee and the annual fee is around £800. Compare this to the cheapest International SIPP available (Novia), where there is zero establishment fee and an annual fee of £216.
Approaching Lifetime Allowance (LTA)
The main situation where we would recommend a transfer to a QROPS is to mitigate lifetime allowance (LTA) concerns.
A transfer to a QROPS is classified as a Benefit Crystallisation Event (BCE). As a result, there is a lifetime allowance test when the pension is transferred. If the value exceeds the LTA, a 25% charge is incurred on the excess.
However, as the pension is taken outside of UK jurisdiction, any subsequent growth within the pension is not subject to the LTA. Therefore, after the initial test is done on transfer, there are no further charges on the value of your scheme.
If you have a pension where the value is approaching the LTA (currently set at £1,073,100), it would make sense to transfer to a QROPS. You would avoid an LTA charge and when the pension increases in value, the growth is tax free.
Losing the regulation of the FCA
One of the concerns with a transfer to a QROPS is losing the robust protection of the FCA. The Financial Conduct Authority regulates the behaviour of financial services firms to protect their consumers. It is one of the most stringent regulatory bodies in the world, and holds the companies who are regulated by it to the highest standards.
By moving your pension outside of UK jurisdiction, you will no longer be protected by the FCA. If your QROPS is based in Malta, the provider will be regulated by the Malta Financial Services Authority (MFSA).
What are my other options?
If you do not have any LTA concerns, it may not make sense to transfer to a QROPS. This is due to the higher expenses and loss of UK regulation.
An alternative option is to transfer your pension to an International SIPP (ISIPP). An ISIPP is simply a UK SIPP specifically designed for non-UK residents. The ISIPP allows you to access your pension flexibly, receive payments in different currencies (GBP, EUR and USD) and consolidate different pensions into the one scheme.
If you are interested in assessing your UK pension options as a non-UK resident, please get in touch for a free, no obligation discussion regarding your situation.