QROPS – a Beginner’s Guide

Now, I know that the term Qualifying Recognised Overseas Pension Scheme sounds very complicated, but the basics are really quite simple.

QROPS, as they’re known for short, are a type of pension scheme specially designed for UK citizens who wish to retire overseas and not have their pension fund at the mercy of UK pension laws. Plus they are fully recognised and accepted by HM Revenue & Customs.

Basically, if you retire abroad using a QROPS you will have more control and pay less tax on your pension fund compared with one based in the UK.

QROPS benefits in a nutshell

  • More flexible regulations on payments, withdrawals and changes to your pension fund
  • Pay lower taxes against your payments, withdrawals and changes to your pension fund
  • Get payouts from your pension fund in your local currency
  • In the event of your death your beneficiaries will receive all your remaining funds without them being taxed by the UK
  • You can self-manage your fund or use an adviser

The only fly in the ointment with these benefits is that they kick in only after your QROPS has been set up for five years and you’ve been registered as a non-UK resident for five years. So the sooner you get it set up, the more quickly you will start to benefit.

Why using a QROPS enables you to avoid UK taxes and regulations

The reason you can avoid UK taxes and regulations is because HM Revenue & Customs allows the companies that set up the QROPS to register outside of the UK. This means that the QROPS is then bound by the regulations and taxes of the country they choose to register in, instead of the UK.

This means that all these companies need to do is register in a country that has fewer regulations and lower taxes than the UK, which you can then benefit from.

As mentioned above, due to the agreement between HM Revenue & Customs and the QROPS providers, you’re still regulated by UK laws for the first five years of your QROPS being set up and you being registered as a non-UK resident.

But once the five years has been served, you will then be liable only for the regulations and taxes of the country where your QROPS is registered, and any local regulations and taxes of the country where you’ve decided to retire to.

What’s involved in transferring your pension fund into a QROPS?

First you need to appoint a financial adviser who will then have the power to investigate and handle the transfer of your QROPS. Once you’ve agreed which QROPS is best for you, the transferring of your funds should take about two to three months.

The quickest way to transfer your funds is to liquidate your fund before you make the transfer.

It’s also worth mentioning that the QROPS you choose does not have to be registered in the country you’re retiring to. You’re free to choose one that is registered in a completely different country.

Are there any problems with QROPS?

So far it all sounds great; basically you’re able to free your pension fund from the clutches of the UK taxman and enjoy your retirement.

On the face of it, this is true. However, there is one area you need to be careful with. Just as QROPS can be approved by HM Revenue & Customs, they can also have this approval withdrawn if it is felt that your QROPS is operating outside of the agreed guidelines.

If this happens then all the benefits of your QROPS will end, and you’ll be liable for any fines associated with transferring your pension fund outside of the UK.

The best way to avoid this is to always use a trusted financial adviser. This way they can make sure you’re dealing only with QROPS that are run by respectable and proven companies.

Conclusions on QROPS

If you’re planning to retire abroad then transferring your pension fund into a QROPS is a great way to get more for your money, and have much greater control, compared with keeping it in a UK-based pension scheme.

After five years of setting up your QROPS and becoming non-UK resident, you will be freed from UK regulations and taxing, and instead be regulated and taxed at a much lower rate (which is dictated by the laws of the country where your QROPS is registered).

But before committing to a QROPS you must remember always to use a trusted financial adviser, so you don’t choose a QROPS which may risk falling foul of the guidelines established by HM Revenue & Customs.