If you are a British expat, you are bound to have heard of the tax and investment benefits of an offshore QROPS pension.
But although they are a great option for many expats and overseas workers who have returned home who have left a UK pension behind, they may not suit everyone.
To help you decide if a QROPS is for you, here are some of the qualifying rules explained and pitfalls to watch out for.
Where are you tax resident?
Tax residence means the country where you pay your income and capital gains taxes. If you are British taking a posting abroad for a year or so, you may consider yourself an expat but the law may say you are still a British taxpayer.
QROPS are only available to expats who are tax resident overseas.
If you are not British but have worked in the UK and saved into a pension, you may switch the fund to a QROPS if you are tax resident elsewhere.
What sort of UK pension do you have?
Pensions come in two types – defined benefit and direct contribution.
A defined benefit (DB) pension is typically a workplace scheme with a guaranteed, index-linked, retirement income and other benefits based on final salary and length of service with an employer.
A direct contribution pension (DC) comes with no guarantees and any pay-out is based on the fund value at 55 years old or later.
Expats cannot switch public sector, civil service or the state pension to a QROPS.
What about the pension fund size?
How much money is in the pot should not matter as QROPS come in ‘lite’ and ‘standard’ formats.
Generally, the cut-off between the two is if the pot is worth £100,000 or more.
This includes any funds that are consolidated – like one worth £10,000 and another worth £70,000 gives a transfer total of £80,000.
A point to watch is a transfer fund of £30,000 must be transferred under advice from an IFA or guidance service, such as Pension Wise. Few providers will accept a DB pension without proof advice has been taken.
What if I don’t qualify for a QROPS?
If you do not qualify for a QROPS, the options are leaving the money where it is or switching the funds to a self-invested personal pension (SIPP). The same advice rules apply to a SIPP worth £30,000 or more as to a QROPS.