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What are QROPS Pensions and are they suitable for me?

Updated 29 Jun 2020

QROPS are a type of offshore pension which is recognised by the British authorities (HMRC) as being eligible to receive transfers from UK-registered pension plans. Expatriates living abroad can transfer both company and personal pension funds into a QROPS, providing an annuity has not been purchased or, if it is a final salary pension scheme, the payment has not begun.

What are the benefits of QROPS?

Reduced income tax liability – pension income is taxed in the UK at the same rate as income tax. Some countries do not tax pensions or have a lower income tax rate. If you intend to retire in a country with a lower income tax rate than the UK, you could potentially enjoy more of your retirement income.

No inheritance tax – with a QROPS, there is no requirement to buy an annuity at the age of 75, and you are therefore free to leave any residue in your pension fund to your heirs free of inheritance tax.

More flexibility – QROPS pensions offer much greater flexibility. For instance, you can take tax-free lump sums out of the pension, even if you have already taken 25% from it. With the pension scheme, you may invest in onshore and offshore funds and high-interest deposit accounts in any currency.

What are the risks of QROPS?

Some unscrupulous advisors take a commission of as much as 30% when transferring funds from a UK pension provider to a QROPS. Make sure you use a reputable UK-registered financial advisor and check their fee structure. As a rule of thumb, the fees and charges will outweigh the benefits of transferring a pension unless the fund is worth more than £100,000. Charges usually vary between 1% and 5% of the funds transferred.

QROPS are not suitable for those retiring to all jurisdictions, as some countries apply similar or higher rates of tax to pensions than the United Kingdom. Most financial advisors cannot advise on tax rates in overseas jurisdictions, and you are advised to do your own research and contact a local accountant.

With the flexibility of QROPS (being able to take out lump sums over and above 25%) comes the risk of funds running out before you do.

QROPS are usually only suitable for those who are non-residents for UK tax purposes and plan to remain offshore for a full five tax years or more.

The first step for most people is to build up a sizeable pension under the UK’s existing and generous tax rules.

It is essential that you get advice from a reputable UK-based financial advisor before making any decision on QROPS. Remember that a QROPS must be registered with HMRC to be eligible.

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