What is a QROPS and how can I transfer to one?
A qualifying recognised overseas pension scheme (QROPS) is a pension scheme based in another country. Learn more about what it is and how to transfer to one.
If you’re thinking about living abroad, or you’ve already moved, there are two things you can do with your UK pension.
You can either leave it where it is, or you could transfer it into a suitable overseas scheme, known as a QROPS.
This is a decision to be made carefully and with the support of a financial adviser, but there are potential benefits to this route.
What is a QROPS?
A qualifying recognised overseas pension scheme (QROPS) is an overseas pension scheme that HMRC considers eligible for transfer from pension schemes registered in the UK.
To gain this eligibility, a scheme must have similar characteristics to those in the UK.
For example, they might not allow access to pension benefits before the age of 55.
Pension schemes from outside the UK that are thought by their providers to meet HMRC’s qualifying rules can be put forward for inclusion on a government-managed QROPS list, which is updated twice a month.
One of the main reasons people consider a QROPS is tax efficiency.
Transferring your pension overseas can have significant tax implications, however – in the UK and in the country where your QROPS is located – so it’s well worth taking some professional advice before making your move.
How do QROPS work?
The steps you take to set up a QROPS are much like any kind of pension transfer, but here are the fundamental steps you need to consider.
Seek expert advice
This is always true when transferring a pension, but when you’re looking at a QROPS transfer, you should definitely seek the help of a regulated pension adviser.
It would also make sense to talk to an adviser in the country where your QROPS is based alongside a UK adviser.
Check the HMRC QROPS list
It’s essential the overseas scheme you choose is recognised by HMRC and on its list.
If a QROPS transfer is made to a scheme that is not considered a qualifying scheme by HMRC, a tax charge of between 40% and 55% may apply. The list is updated twice a month so it’s important to check regularly as only schemes on this list are eligible for transfer.
Talk to your provider in the UK
You’ll need to know that a QROPS transfer is possible, and you’ll also need to fill in ‘transfer out’ forms to get the ball rolling.
Contact the QROPS provider
You’ll need the scheme’s details and to know that they’re willing to accept an overseas transfer.
There may well be issues around language, so prepare your information and questions carefully.
Complete Form APSS263
You’ll need to download and fill in Form APSS263 from the government website, so you can give it to your UK pension provider.
Be patient
While things can fall into place quickly, transferring your pension is likely to take some time. Typically a QROPS transfer can take several months to complete and there may be additional fees to prepare for throughout the process.
What are the QROPS pros and cons?
Here are some of the main benefits and risks associated with QROPS:
| Pros | Cons | |
|---|---|---|
| Income tax | Your pension income may be taxed more favourably abroad, depending on the country where the QROPS is based. | You might have to pay a higher rate of tax, or even twice if there’s no double taxation agreement. |
| Tax at time of transfer | You might be able to transfer tax-free. | QROPS transfers may attract a 25% tax charge under certain conditions. |
| Flexible access | There can be more flexibility around accessing your pension money. | Greater flexibility can increase the risk of emptying your pension fund early. |
| Investment choice | You might gain a wider choice of investments outside the UK. | Investments can be less regulated and riskier than in the UK. |
| Estate planning | There can be more flexibility around passing on your pension when you die. | Rules and taxes around inheritance might be less favourable than in the UK. |
| Currency | If you live in the country where your QROPS is based, you can receive income in the local currency, avoiding the cost of conversion. | There aren’t any significant downsides. |
| Protection | The country where your QROPS is based might provide greater safeguarding should a pension provider fail. | You won’t be protected by UK organisations such as the Financial Conduct Authority and Pensions Ombudsman. |
What about QROPS pension scams?
Another potential challenge with QROPS is scammers.
They often target overseas transfers, so you need to be aware of this.
The abundance of scammers around QROPS is another very good reason for taking regulated professional financial advice – to make sure the scheme you’re considering is genuine.
Be immediately suspicious of anyone who contacts you unexpectedly offering to help transfer your pension, and if the offer sounds too good to be true, then the chances are, it is.
Get expert financial advice
When considering a QROPS transfer, it's essential to carefully weigh the benefits against the potential drawbacks.
While a QROPS can offer tax efficiencies and investment flexibility, it also carries risks, such as higher taxes or less regulatory protection compared to the UK.
Ensuring the scheme is regulated and seeking professional advice from UK and local experts can help you make an informed decision and safeguard your pension while living abroad.
The wise way forward is to take advice from a regulated professional who knows the pros and cons of QOPS, and can help you shape a strategy that fits your circumstances.
Let Unbiased match you with a financial adviser for expert financial advice on navigating QROPS transfers to ensure you make the best choice for your retirement funds and avoid any potential pitfalls.
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