Need to know QROPS facts for expat retirees

Much has been written on expat forums about the pros and cons of transferring a personal pension to a QROPS, but the exact definition of the overseas pension scheme is often missing.

Qualifying Recognised Overseas Pension Schemes (QROPS) are offshore pensions certified by their providers to meet HM Revenue and Customs rules permitting each scheme to receive transfers from other QROPS and UK private pensions. Firstly, retirement savers can only access their pension funds from the age of 55 or older and, secondly, the chosen QROPS must also be offered to pension savers in its country of origin. A full list of available QROPS is issued by HMC on the first and 15h of every month.

Important benefits for expats include the convenience of a pension based in the new country of residence, with payments being made in the currency of expats’ country of residence. In addition, QROPS offers a wider selection of investments than do UK-based pensions. Expats should note QROPS pensions are trust based, with certain countries, including the USA and France, not recognising trusts when taxing returns. As a result, regulated professional advice both in the receiving country and the UK should be taken as regards confirming tax residence.

The overseas transfer charge is, put simply, a tax of 25 per cent of the total transferred either between QROPS or out of the UK, and doesn't apply to expats living in the European Economic Area. However, it does apply to expats in all other world countries with the exception of the country in which they and their chosen QROPS are based. Even then, should the expat move to another country before five years have elapsed, the 25 per cent charge becomes payable, making yet another good reason for seeking qualified financial advice from an international IFA.

Those whose pension pots exceed the lifetime allowance of £1 million at the point of transfer to a QROPS will face a tax penalty, but should the fund be transferred prior to reaching the threshold, the investment can grow unhindered. Since last April, overseas QROPS providers can offer ‘pension freedoms’ allowing cash withdrawals of savings to those over 55. However, the majority of offshore financial jurisdictions still need a change of law in order to apply the benefit, with Malta and the Isle of Man now offering QROPS with pension freedoms.