UK Pension Transfers to Overseas QROPS Explained

Illustration of QROPS pension savings

A Qualifying Recognised Overseas Pension Scheme, QROPS, are one of the best ways to manage your pension money if you dream of leaving the UK to retire overseas. Switching your savings to an overseas pension designed for expats is one option tens of thousands have taken.

This guide explains what a QROPS pension is, the benefits, and how to transfer your UK pensions to an overseas qualifying scheme.

The Qualifying Recognised Overseas Pension Scheme has seen more than 130,000 expats transfer £12 billion offshore since 2006.

QROPS are not only for the wealthy. According toHM Revenue & Customs, HMRC, the average expat transfers £92,000 into an offshore pension, an affordable figure for most retirement savers.

Although you can unlock extra pension benefits with a QROPS, you must understand how offshore pensions work to gain the best rewards.

Statistics of QROPS

HMRC keeps a tally of the number and value of transfers from the UK to QROPS pensions each year.

Here are the latest figures:

Tax YearNumber of TransfersAggregate Transfer Value (m)Average TransferOTC transfersOTC paid (m)
OTC: Overseas transfer charge (Introduced March 2017)
Source: HMRC

What is the QROPS List?

QROPS sound mysterious, but they are not. In simple terms, a QROPS is a pension based outside of the United Kingdom that meets a set of rules laid down by HMRC that can accept transfers from a UK pension fund or another QROPS.

Once a QROPS meets these rules, the provider tells HMRC, and the taxman includes the pension on the official QROPS List.

Providers can only transfer funds to pensions on the latest QROPS List.

The exceptions are a few QROPS that tick the no publicity box. Expats must check with HMRC to confirm they can transfer funds to these pensions.

It’s vital to ensure a QROPS is on the HMRC list before transferring any money.  Your financial advice team should undertake this due diligence.

HMRC does not approve pensions on the QROPS List nor checks if they comply with the rules.

Moving money to a pension that is not on the QROPS List comes with a tax penalty starting at  55 per cent of the value of the funds transferred.

Some other things to remember about QROPS include:

  • A QROPS is a form of trust. The funds buy an offshore personal portfolio bond (OPPB), which acts as a wrapper containing the investments.
  • You can’t transfer every UK pension into a QROPS. Exempt schemes include public service pensions, other final salary pensions and the state pension.
  • QROPS are defined contribution pensions with a level of benefits that depend on an investment fund’s value. As stock markets rise and fall, so will the value of the fund and the benefits paid.
  • QROPS do not offer guaranteed retirement incomes or cost of living increases
  • Many rules that apply to UK personal pensions and SIPPs apply to QROPS, such as age limits and pension freedoms

Overseas Transfer Charge

In the past, the way to minimise the amount of tax you paid on your QROPS pension income was to match the place where your QROPS was based with where you intended to retire.

Unless they are in the same country, they should have had a double taxation agreement (DTA).  A DTA means the country where you live has taxing rights over your pension rather than the country where you kept your pension fund.

This guidance is not so important now as the QROPS world divides into two parts:

  • The European Economic Area (EEA), which comprises the European Union plus Iceland, Norway and Liechtenstein
  • The rest of the world

Switzerland is the odd man out. Switzerland is not in the EEA but is a single market member, which gives the country a special relationship with mainland Europe but makes pensions transfers to the country subject to the overseas transfer charge if you live elsewhere in Europe.

How the overseas transfer charge works?

The overseas transfer charge applies when a UK pension or QROPS to a QROPS outside the EEA transfers money to a QROPS not set up in the same country as the expat lives.

Outside the EEA, expats may have a QROPS providing the pension is administered in the country where they live.

For example, an expat in Australia can have an Australia QROPS without paying the overseas transfer charge but would pay the penalty if you set up the pension in New Zealand.

Expats pay a penalty of 25 per cent of the value of the transferred fund.

QROPS rules allow expats to avoid the overseas transfer charge if they live in any EEA country while keeping their pensions in any other EEA country.

For example, currently, Spain has no QROPS but is home to around 800,000 British expats. However, Austria, Denmark, Belgium and Malta are among the EEA countries with QROPS, so expats in Spain can choose a Malta QROPS without risking the overseas transfer charge.

Why Would An Expat Want A QROPS?

One of the main reasons expats would transfer their pensions to a QROPS was to pay less tax.

Tax is still an important factor in the list of benefits of moving money to a QROPS, but other factors have come into play over time.

QROPS and the Lifetime Allowance

In these times of massive golden handshakes offered to executives to quit workplace pensions, beating the lifetime allowance tax penalty with a QROPS has become an exciting proposition.

The UK lifetime allowance rules let retirement savers pensions grow to a maximum of £1,073,100.

Once they hit this glass ceiling, any excess fund value is taxed at 25 per cent.

However, a fund is tested against the lifetime allowance on transfer to a QROPS.

  • If the fund value is more than the lifetime allowance, the 25 per cent tax charge is applied
  • If the fund is less than the lifetime allowance, once the fund moves to a QROPS, it can grow to any size free of any tax charge

Tax Efficiency

Like any UK pension, a QROPS fund grows free of capital gains tax. In addition, income tax is not deducted from benefits.

The tax on benefits depends on the prevailing tax rates in the country where you live.

In a nutshell:

  • Inbound funds are only taxed if they breach the lifetime allowance of break overseas transfer charge rules
  • While in a QROPS, no tax is due on the fund
  • Outbound benefits are taxed according to the rules and rates of the country where the expat lives

Investing with a QROPS

QROPS offer a far broader range of appetite-appropriate investment choices than those available in the UK.

The range of investments varies between QROPS, with ‘lite’ pensions having the fewest fund options.

While UK pensions are restricted to UK funds and Sterling, many QROPS can access multiple stock markets, currencies and commodities.

The flexibility of a QROPS allows tailoring the level of investment and asset class options to meet the demand for growth of the fund.

Investments are self-managed or with help from an investment manager.

Tax-Free Lump Sum

In the UK, the tax-free lump sum available is 25 per cent. However, a QROPS can reach 30 per cent, with the remainder set to be available for instant withdrawal at the local tax rate, which in many jurisdictions is nominal.

So while a 100 per cent lump sum withdrawal is available for a UK pension, the appeal of a 100% withdrawal in a different jurisdiction with a more attractive tax rate is difficult to avoid.

Pension Freedoms and QROPS

Just as you can treat your pension like a virtual bank account in the UK with pension freedoms, the same rules apply to most countries hosting QROPS.

Savers want control over their retirement cash and the power to decide how much money they can take.

In short, pension freedoms allow QROPS retirement savers to:

  • Buy an annuity that gives a guaranteed regular retirement income
  • To take a regular income from the QROPS
  • Cash in the entire fund
  • To take irregular amounts of cash whenever they want

Moreover, you can mix your pension freedoms, for example, taking half the fund as a lump sum and leaving the rest invested to pay irregular lump sums whenever you need them.

Like a UK pension, expats with a QROPS must wait until they are 55 years old before making any money from their pension.

Foreign Currency

QROPS do away with the expat problem of managing unfavourable foreign currency exchange rates.

If you need the money and the pound is performing poorly against the currency you live in, you risk losing money.

QROPS resolve this problem. You can set up a QROPS in many major currencies and receive the benefits in your local currency, cutting out foreign exchange worries.

QROPS: Pension for Expats on the Move

QROPS are designed for British expats who have moved overseas permanently.

To set up a QROPS, you need to settle as a tax resident in another country. That way, your financial advisor can set up your offshore pension according to the tax rules where you live.

You can still spend time away from the country where you live without causing any issues for your QROPS, providing you do not become a tax resident elsewhere.

  • You will not encounter any QROPS issues if you move between EEA countries and your QROPS is set up in the EEA
  • If you settle in a country outside the EEA without a QROPS provider, you cannot move your UK pension to a QROPS without triggering the overseas transfer charge.
  • If you are on assignment overseas but a UK tax resident, consider starting a self-invested personal pension (SIPP). You retain all the tax advantages of  paying into a UK pension and have the option of switching your fund to a QROPS later

Which Countries have QROPS?

QROPS pensions for British expats are hosted in 28 countries, although the number can vary.

QROPS host countries within the EEA are:

  • Austria
  • Belgium
  • Bulgaria
  • Denmark
  • Finland
  • Germany
  • Ireland
  • Latvia
  • Liechtenstein
  • Luxembourg
  • Malta
  • The Netherlands
  • Norway
  • Slovakia
  • Sweden

Countries outside the EEA that have QROPS:

  • Australia
  • Barbados
  • Canada
  • Gibraltar
  • Guernsey
  • Hong Kong ( for China)
  • India
  • Isle of Man
  • Jersey
  • Kenya
  • New Zealand
  • South Africa
  • Switzerland

QROPS and Regulation

Most schemes are regulated by the government’s financial authority for the country where they are set up.

There are some exceptions for QROPS based on the EEA, occupational pension schemes and regulated pension providers.

Frequently Asked Questions about QROPS

Below are some of the frequently asked questions about transferring your UK pension to a QROPS.

Can I have a QROPS if I live in the UK?

QROPS are pensions for expats living permanently abroad, but if you are an expat and have to return to the UK for some reason, you can make arrangements to bring your pension home as well. Bringing your QROPS to Britain will result in fewer tax breaks and benefits.

Can foreign workers with UK pensions take out a QROPS?

If you are a foreign national who worked in the UK and have left the country, you can transfer your UK pension to a QROPS. You and the QROPS will have to meet the same rules as a British expat moving overseas.

How much does transferring my pension to a QROPS cost?

There’s no fixed cost as each case depends on its own merits. Ask your financial adviser for a quote before you start the QROPS application process. The cost will depend on the size of the transfer, your financial circumstances and your retirement plans.

Can I contact a QROPS direct for a transfer?

No, you cannot contact a QROPS provider to arrange your transfer. Although there is no reason you shouldn’t, the QROPS provider will want to see an investment recommendation from an IFA that green lights the transfer.

How do I decide which QROPS is best for me?

To decide which is the best QROPS for you, speak to an IFA experienced in QROPS transfers.
The IFA will ask you about your finances, retirement plans and other personal information and draft a short-list of QROPS that match your requirements. There is no one-size-fits-all QROPS that you can pick off a shelf; the pensions are tailored to suit each retirement saver.

What’s the difference between a QROPS and a ROPS?

HMRC dropped the term ‘qualifying’ from QROPS some years ago, but they are still called QROPS by advisers.

Technically, all QROPS are in the Recognised Offshore Pension Scheme (ROPS) but a ROPS does not have to be in the QROPS subset. Confused? Well, HMRC has a checklist of requirements providers must comply with to become a ROPS and to become a QROPS, an offshore pension must meet the same rules plus jump through a few more hoops.

Is switching to a QROPS tax evasion?

No. QROPS are a legitimate retirement saving option supervised by HMRC. Although no UK tax is paid on QROPS benefits, expats are still taxed on their pension income according to the rules in the place where they live.

How do QROPS pay out?

This depends on you – if you go down the flexible access route when you reach 55 years old and take the entire fund, a regular income or just take what you want when you want.

Whatever you decide, you still get the lump-sum, but be warned, take local advice as some countries do tax this.

QROPS can pay out in different currencies and it’s a good idea to choose one to match your local currency as this avoids foreign exchange complications and charges.

The main currency denominations are the US dollar, British pound or Euro, but others will pay in Indian rupees and Australian dollars, for example.

Has Brexit changed QROPS?

No. QROPS rules remain unaltered by Brexit and governments in the UK and Europe have not given any hints that the rules might change.

How do expats know if their pension is a QROPS?

Since April 2006, HMRC has published a list of QROPS offshore pensions every two weeks or so. The updated list is posted online.

Do expats need a financial adviser to start a QROPS?

Most QROPS providers will only accept applications to set up a pension from a suitably qualified financial adviser who is generally an IFA. Expats should check their IFA holds the appropriate advice qualifications to handle the transfer in the country where they live.

How many countries offer QROPS?

According to the latest HMRC QROPS list, QROPS are available in 27 countries. The biggest markets are Australia and Europe.

What happens to a QROPS when an expat returns to the UK?

If the visit is temporary, nothing happens to the QROPS, but for a permanent move, special rules dictate that QROPS benefits are tax-treated the same as a UK based pension. Generally, the rule is expats should only transfer to a QROPS if they intend to remain overseas for good although life can happen, and expats may return home unexpectedly for many reasons.

Can expats transfer money between QROPS?

Yes. Expats can transfer pension funds between QROPS, for example from an older scheme with higher charges to a new scheme with flexible access and lower charges.

Are QROPS expensive pension options?

QROPS are not suitable for every expat and the set up and management charges vary between schemes. Expats with smaller pension funds may find the costs are high, but some providers do offer cheaper ‘QROPS lite’ schemes for them.

Are international SIPPs a better option for expats?

This depends on an expat’s personal circumstances. Expats on assignment abroad for a year or two may find a SIPP the better option. However, an international SIPP is a UK pension and is regulated like any other UK pension.

Can expats consolidate several pensions into a single QROPS?

Yes. Pension consolidation is available into a QROPS from a UK defined contribution personal or workplace schemes and from defined benefit workplace pensions. Expats cannot transfer the State Pension or a government-backed scheme that has no underlying fund.

Below is a list of related insights that you may find of interest.

Questions or Comments?

We love to get feedback from our readers. So, after reading this article, if you have any questions or want to make comments, send us a message on this site or our social media?

Don’t forget that you can also request the guides sent directly to your email inbox.

Below is a list of some related articles that you may find of interest.

Leave a comment