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QROPS
Questions and Answers
For professional advisor use only
What is a QROPS?
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A QROPS is a Qualifying Recognised Overseas Pension Scheme that has met the criteria defined by
Her Majesty’s Revenue & Customs (HMRC). Any QROPS can, in principle accept a transfer from a UK
registered pension scheme.
•
Since 6th April 2006, HMRC has allowed individuals to transfer their UK pension funds to a Qualifying
Recognised Overseas Pension Scheme (QROPS) based in another jurisdiction.
What do we mean by recognised in a Qualifying Recognised Overseas Pension Scheme?
•
QROPS are recognised by HMRC, however this does not mean that they are approved by HMRC.
A QROPS is normally approved in its jurisdiction under local rules, for example in Gibraltar. It is then
submitted to HMRC to obtain a QROPS certificate, for which the scheme has to meet certain criteria.
At this point it is recognised and added to HMRC’s list of recognised schemes. HMRC can withdraw the
QROPS certificate if the scheme does not continue to meet the criteria to be recognised.
What is the difference between QROPS, QOPS, QNUPS?
•
QROPS – Qualifying Recognised Overseas Pension Scheme. Designed to accept the transfer of a UK
registered pension scheme, typically for an individual who is retiring overseas. UK registered pensions
are only permitted to transfer into another UK registered pension or into a QROPS.
•
QOPS – Qualifying Overseas Pension Scheme, a new acronym, introduced by HMRC in December
2013. UK resident individuals can use these to obtain UK tax relief on contributions to an overseas
pension scheme. These are designed for non-UK domiciled individuals who wish to save into a globally
mobile pension.
•
QNUPS – Qualifying Non UK Pension Scheme. Suitable for an individual who wishes to make
supplementary pension contributions in a tax efficient manner.
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What is a Benefit Crystallisation Event?
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A benefit crystallisation event (BCE) occurs when an individual is entitled to receive a benefit from their
total pension funds, for example, when they take benefits upon retirement. The payment of a transfer
value to a QROPS is also classed as a BCE.
•
Each time a BCE happens, the total pension funds a client takes (or ‘crystallises’) will need to be tested
against their Lifetime Allowance (LTA). This test is generally carried out by the scheme administrator or
scheme trustees and the HMRC reporting framework has been designed to cater for this.
•
The LTA is not in itself a limit; benefits above the allowance can be paid but the excess will then be
subject to an LTA charge. An additional tax charge of 25% will be levied on funds withdrawn as an
excess income or 55% if drawn as a lump sum.
•
The LTA does not apply to any investment growth within a QROPS.
What are the minimum and maximum ages that a client can take their pension?
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The minimum retirement age, when benefits can be taken is 55.
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The maximum age to commence taking benefits is normally 75.
How long does it take to transfer into a QROPS?
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The process is typically completed within 6-8 weeks; however, applications may take longer if they
include the transfer of several historic UK pension schemes.
How much can a client withdraw as a lump sum?
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After 5 years of non UK residency, a client is able to withdraw up to 30% of the fund value as a lump
sum (compared to 25% in the UK). The residual amount must provide a pension income, which can be
taken at any time up to the age of 75, although increased flexibility is expected to bring QROPS in line
with UK pensions.
How much can a client withdraw in any one year?
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There is no requirement to purchase an annuity at retirement. Once a client has considered whether
they wish to take a tax free lump sum, any residual fund value can go into what is known as income
drawdown or withdrawal of funds. If a client chooses to use this method, withdrawal limits will be within
defined parameters, as outlined in the UK government’s GAD tables, although increased flexibility is
expected to bring QROPS in line with UK pensions.
•
GAD stands for the Government Actuary’s Department. The GAD tables show how much pension can
be taken for each £1,000 of capital invested in a pension fund. The GAD rates are dependent on age
and current long term interest rates (as measured by Government securities).
•
Income drawdown from the fund must commence before age 75.
- Before the age of 75, an income of between 0% and 150% of the GAD rate can be taken
from the fund and a client may vary the level of income drawn each year.
- After age 75, a client may draw an income level of between 50% and 150% of the GAD rate.
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Link to GAD tables: https://www.gov.uk/government/publications/drawdown-pension-tables
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How is QROPS income taxed?
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Some QROPS are able to pay income gross. It is then taxed in the client’s country of residence in
retirement where it is sensible for clients to take local tax advice.
What happens to a QROPS pension on death?
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Upon death, the value of the pension fund is protected. Scheme trustees are able to pay a dependant’s
pension if provision has been made for this. There is no tax payable if the member was a non UK tax
resident for more than 5 years.
•
If death occurs before age 75, there will be no tax payable.
Can an individual add to their QROPS on a regular basis?
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An individual can make contributions to their pension fund in a variety of ways:
- Lump sum contributions by cheque or transfer from their bank account
- Regular payments from disposable income
- The transfer of existing pension benefits.
Can further contributions be made to a QROPS which arose from a frozen
UK pension?
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Yes, most QROPS providers will allow a client to continue to invest additional funds either as a
lump sum or regular payments.
Can an individual continue to work and still draw their pension?
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Yes, an individual can draw a pension and continue to work.
Can Protected Rights be transferred to a QROPS?
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Yes, it is possible to transfer a Protected Rights fund (pension monies built up from National Insurance
contribution rebates) into a QROPS.
What restrictions are there to the
investments linked to a QROPS?
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A QROPS will typically allow members, to invest
their pension fund in the following asset classes:
- Shares and other stock-market portfolios
- Fixed-interest securities and other bonds
- Unit trusts, OEICs, offshore funds and other
pooled funds
- Bank and building society accounts
- Insurance bonds
- Commercial property.
•
Remember that lower fixed QROPS costs can often be
available if a single custodian such as on offshore
portfolio bond is used to hold assets.
In some instances,
QROPS can pay income
gross. Clients should take
local tax advice.
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What are the four tests in relation to permitted and prohibited investments?
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There is currently a defined list of permitted and prohibited investments determined by means of four
tests. An investment is judged permissible if it:
- Satisfies the duty of care on the part of the scheme administrator and does not contravene the ‘sole
purpose’ requirement. The sole purpose of a pension scheme must be the provision, for its members,
spouses and dependants, of benefits on retirement and death
- Is commercial and entered into on an
‘arms-length’ basis
- Does not give members/connected persons
further personal benefits (other than the
sole purpose benefit) from the investment
- Can readily be valued by independent
third parties.
Who manages the investment of the pension fund?
•
QROPS trustees do not give any advice in relation
to QROPS investments or the taxation position.
However QROPS trustees do have the ultimate say
over whether an investment is permitted. A professional
advisor is usually appointed to provide investment
advice; most trustees will only accept pensions
business from qualified and regulated
professional advisors.
“Holding a
QROPS within
a portfolio bond
gives access to a
wide range of assets,
subject to HMRC’s
four tests.”
What is the increased flexibility that is being brought in from 6 April 2015?
•
As from 6 April 2015, individuals over the age of 55 are permitted to withdraw up to 100% of a defined
contribution pension scheme, subject to UK tax. HMRC announced on 19 December 2014 that the same
level of flexibility would be permitted within QROPS but has since confirmed that the requirement to use
70% of the fund to provide an income for life will be kept in place temporarily.
•
Defined contribution, or money purchase pension schemes are those in which the benefits at
retirement are calculated based on the contributions paid by an individual or their employer and their
investment growth.
Will the new flexibility apply to Defined Benefit pension schemes?
•
No. The Government believes that the benefits of defined benefit schemes are such that individuals
should not be permitted to take their entire pension at one time.
•
Defined benefit or final salary schemes are those in which the benefits at retirement are calculated
based on the individual’s salary and length of service.
Will an individual be able to transfer out of a defined benefit scheme to a defined contribution
scheme including a QROPS?
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As from 6 April 2015 an individual is not permitted to transfer out of an unfunded defined benefit scheme.
These are normally public sector schemes such as police, army, and some civil service schemes.
•
An individual is able to transfer out of a funded defined benefit scheme providing they have been
advised to do so by a UK FCA regulated advisor. The QROPS Bureau can provide guidance on the rules
and the process for clients seeking to transfer out of a defined benefit scheme.
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Important Notes
The information contained within this document has been produced by The
QROPS Bureau, on behalf of Hansard International Limited. It has been produced
for general information purposes only and does not constitute investment advice.
All Hansard International products are covered by the Life Assurance
(Compensation of Policyholders) Regulations 1991. Tax consequences will depend
on an individual’s circumstances and residence, and may change over time.
Applicants are advised to seek independent professional advice before applying
for any product or if their tax circumstances change during the contract term.
Past performance is not a guide to future performance. Unit prices can go
down as well as up. Unit price performance may be affected by movements in
exchange rates.
For full details of Hansard products, please refer to the product literature.
This material is intended to be for the use of professional advisors. The QROPS
Bureau does not give advice directly to members of the public.
The QROPS Bureau has taken all reasonable measures to ensure that the
information contained in this document is accurate based on its understanding of
current legislation. The QROPS Bureau cannot accept responsibility or liability for
errors in or omission from any information given and for any consequences arising.
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Where local taxation information has been provided, this is based upon a generic
understanding of the jurisdiction as a whole. Taxes may vary regionally due to local
tax office interpretations, and tax rules may change on a regular basis. This is only
a guide and it is highly recommended that you seek local specialist tax advice.
Pension trustees may require specialist tax advice.
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Hansard International Limited
Harbour Court, Lord Street, Box 192, Douglas, Isle of Man IM99 1QL, British Isles
Telephone: +44 1624 688000 Fax: +44 1624 688008 Website: hansard.com
Registered Number 032648C
Regulated by the Isle of Man Insurance and Pensions Authority
HO2043O 10/07/15
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