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Under legislation introduced in the UK in April 2006, the QROPS  (Qualifying Recognised Overseas Pension) regime allows for an individual’s UK pension fund to be transferred to an overseas pension scheme that has been recognised by HMRC (Her Majesty’s Revenue & Customs).

This means that if you currently reside overseas, and have a UK pension entitlement (for instance a company pension scheme, or a frozen personal pension), then using QROPS for retirement planning should be a consideration.

You can apply for a QROPS pension transfer regardless of your nationality (except that many schemes are not open to US Nationals).  For instance, you may have worked in the UK and have now returned to your home country.  QROPS could be a beneficial option.

Note that you cannot transfer your pension scheme if you have already purchased an annuity or taken a payment from a final salary scheme.  Also, you cannot transfer your state pension entitlement.

There are a number of specific criteria that must be met by an overseas pension scheme to qualify under the QROPS rules.  In broad terms, any scheme must be recognised by HMRC as meeting the standards and conditions equivalent to a UK pension.

Popular overseas domiciles for QROPS include Australia, Guernsey, Ireland, Isle of Man and Jersey.  HMRC publishes online a list of QROPS approved schemes at: http://www.hmrc.gov.uk/pensionschemes/qrops.pdf .

The QROPS regime is still relatively young, and in the first few years there have been a number of clarifications to the guidance from HMRC, as well as the cancellation of recognised status for some schemes accused of ‘pension busting’ (allowing clients to have full access to their fund cash, which is not the purpose of the QROPS rules).  Notwithstanding this, there are literally dozens of overseas pension schemes that could be applicable to someone with a frozen UK pension.

To resolve this dilemma, Infinity commenced a project to identity the best QROPS schemes in each of several categories.  After a period of analysis and due diligence, we have been able to shortlist a small number of schemes that we consider are ‘best in class’ due to their features, domicile regulatory strength, financial robustness and experience of the scheme providers, and administration efficiency when dealing with a clients transfer.

Infinity has now developed strategic partnerships with these key providers, meaning that we, and hence our clients, have improved transparency and support when dealing with all pension transfer matters.

Some of the key benefits of QROPS include:

Tax Efficiency – Pension Income Paid Gross Of Tax – QROPS plans are typically domiciled in countries where pension benefits can be paid gross to all non-residents.

Tax Free Lump Sum – At age 55, up to 30% can be taken from your QROPS fund as a tax-free lump sum (the figure may be 25-30% depending on the domicile).Certain QROPS jurisdictions allow for a higher lump sum, providing that at least 70% of the pension value initially transferred remains for retirement.

Inheritance Tax Efficiency – For a UK registered pension, on death after draw-down or age 75 if earlier, a flat rate tax charge of 55% is applied to any lump sum paid to your dependents (but not applied if paid as a dependents pension). Inheritance Tax (IHT) depends on your domicile, not your residence, and is applied on your world-wide assets.  It will apply if you are a UK expatriate, even if you haven’t set foot in the UK for many years.

But after five full tax years outside of the UK, and by careful choice of QROPS domicile, there is nil IHT charge on your pension fund.  Use of a QROPS pension for inheritance tax planning can be very beneficial, because you can make additional contributions into your QROPS fund, hence ring-fencing those sums from future IHT demands.

Transfer Of Wealth – A UK pension has severe restrictions on what can be passed on to your heirs.  In contrast, upon your death, any unused assets of your QROPS pension will be paid to your estate or nominated beneficiary, which could be a trust.  This ensures the longevity of the accumulated assets you have built up during your lifetime.  This is particular advantageous given that there is no compulsion to buy an annuity within a QROPS.

Re-domicile Your Pension Currency - By moving your pension overseas and into a QROPS structure, you have currency flexibility and the potential to plan for a pension income in the same currency as your expenditure.  This is particularly beneficial for expatriates, and can mitigate the risk of reduction in real income due to future exchange rate fluctuations between sterling and your chosen currency (for example as suffered by British expats in Spain when Sterling plunged against the Euro).

To find out more about QROPS and whether it might be applicable to your situation, please contact your Infinity advisor.