QROPS Pension Transfer: A Guide for British Expats Transferring a Pension Overseas

We simplify the complexities of QROPS (qualifying recognised overseas pension schemes), providing you with crucial insights if you’re considering or in the process of a QROPS pension transfer.

What is a QROPS?

A QROPS, or qualifying recognised overseas pension scheme, is an overseas pension scheme that meets specific standards set and recognised by UK HM Revenue and Customs (HMRC).

This ‘recognition’ or ‘approved status’ allows British expats or any nationality that has built up pension rights in the UK, to transfer their UK pension benefits overseas, without incurring unauthorised payment charges, which can be substantial.

A QROPS pension transfer can allow expats to manage their pensions more effectively, take advantage of tax benefits, and have more flexibility with the overall management of their pension arrangements.

However, seeking expert financial advice from qualified and regulated advisers knowledgeable and experienced in the UK and international market is essential due to the complexities and potential tax implications.

Understanding Eligibility and Rules for QROPS Pension Transfers

Considering a QROPS pension transfer requires a clear understanding of the eligibility criteria and rules. Grasping these factors is pivotal to ensure a compliant and beneficial transfer.

Qualifying Criteria for a QROPS Pension Transfer

You are eligible for a QROPS transfer if you are a UK resident planning to emigrate, retire overseas, or have already left the UK and accumulated a pension in a privately managed scheme.

Additionally, if you were born outside of the UK but have worked in the UK and accrued benefits in a UK Pension Scheme, you also qualify.

However, to qualify for a QROPS transfer, you and your QROPS must fit the following criteria:

1. Pension Scheme Eligibility: Your UK pension trustee must be in a position to facilitate a transfer to a QROPS.
2. Residency Status: You should either be a non-UK resident or plan to become one within 12 months.
3. Age Requirements: You must be over 18 and under 75 to transfer your pension to a QROPS.
4. Regulatory Compliance of the QROPS: The overseas pension scheme you are transferring to must be recognised and regulated in its own country and meet specific standards set by HMRC. It must also be listed as a QROPS by HMRC.

While not a formal requirement, we strongly advise you to obtain professional financial advice to ensure compliance and that you understand the implications of a QROPS transfer.

However, many QROPS pension trustees operate on an ‘adviser-led’ basis, which mandates that members must engage a fully qualified and regulated adviser for their pension transfers. As a result, attempting such a transfer without the guidance of an appointed adviser can be exceptionally challenging.

What are the QROPS Rules?

Understanding the different QROPS rules is essential for ensuring compliance when transferring a UK pension overseas. Here are the key regulations associated with QROPS pension transfers.

Recognised and Regulated by HMRC

A QROPS must adhere to standards and regulations set by the UK HM Revenue and Customs (HMRC). This includes being recognised and regulated in the jurisdiction where it is established.

10-year QROPS Reporting Requirement

QROPS providers must report any payments made for at least ten years after the pension transfer to HMRC. This is to comply with UK tax regulations.

During this time frame, your QROPS provider is required to report any unauthorised withdrawals to the relevant authorities.

An unauthorised withdrawal is defined as accessing funds or benefits from your pension scheme before age 55.

Accessing your funds before age 55 can result in substantial financial repercussions. You could incur a tax charge of up to 40% of the withdrawn amount and an additional surcharge as high as 15%.

QROPS Five-Year Rule

If you return to the UK within five tax years of a QROPS pension transfer, the pension may be subject to UK tax rules. This is a crucial consideration for those who might repatriate back to the UK.

Once you have completed five full tax years outside of the UK, QROPS offers the flexibility to withdraw up to 30% of your pension as a lump sum without incurring UK Income Tax.

However, it’s essential to consider the tax laws of your current country of residence before transferring to a QROPS, as this withdrawal may be taxable there.

Tax Implications of a QROPS Pension Transfer

Transferring your pension to a QROPS can offer certain tax advantages. It does however, also bring with it a set of complex tax implications. Understanding these tax dynamics in the context of the UK and the country where your QROPS is located is crucial.

What Tax Do You Pay When You Transfer to a QROPS

Whether you are required to pay tax on a QROPS pension transfer is determined by the QROPS you have chosen and which country your UK pension is being transferred to.

QROPS Overseas Transfer Charge

In 2017, the UK government introduced an Overseas Tax Charge. This 25% charge applies under specific conditions.

In general, a 25% tax or overseas transfer charge will be payable if:

• You transfer your pension to a QROPS located in the European Economic Area (EEA) or Gibraltar while residing outside the UK, EEA, or Gibraltar or if you relocate outside these regions within five years of your transfer.
• You transfer to a QROPS outside the UK, EEA or Gibraltar, and you don’t live in the same country as your QROPS. However, your tax charge will be refunded if you move to that country within five years of transferring your pension.

You will not have to pay a QROPS overseas transfer charge if:

• Your employer has provided the QROPS you are transferring to.
• You live in the country where your QROPS is located.
• The QROPS is located in the European Economic Area (EEA) or Gibraltar, and you are a resident in either the UK, Gibraltar, or a country within the EEA.

Lifetime Allowance

Historically, concerns over breaching the Lifetime Allowance (LTA) cap was a key reason for expats deciding to do a QROPS pension transfer.

However, Starting April 6, 2024, the LTA charge has been removed.

Tax When Accessing Your QROPS Pension

Transferring your pension to a QROPS does not automatically grant you an exemption from UK tax regulations when you begin to draw from your pension. There are specific QROPS rules you must comply with:

• If you draw from your QROPS before 55, unless the scheme’s ill health provisions apply, you could face a tax charge of up to 40% of the withdrawn amount, plus an additional surcharge as high as 15%.
• You must have been a non-UK tax resident for ten full, complete, and consecutive UK tax years before accessing your QROPS pension.
• If you withdraw from a QROPS within five full, complete, and consecutive UK tax years of a QROPS pension transfer, it may be subject to UK tax rules.
• If you resume UK tax residency within five full, complete, and consecutive UK tax years of a QROPS pension transfer, the pension may be subject to UK tax rules.
• Regular income from a QROPS will be taxed according to the laws of your country of tax residence. If that country has a Double Taxation Agreement (DTA) with the nation where the QROPS is based, and the DTA contains pension provisions (it’s worth noting that not all DTA’s do), you may avoid paying tax on your pension benefits in both countries.

What Happens If I Transfer to an Overseas Scheme That’s Not a QROPS?

Transferring your pension to a non-recognised overseas pension scheme can have significant financial consequences:

• The transfer will typically be taxed at 40%. If identified as an unauthorised payment by HMRC, you could face a tax charge of up to 55% on the transferred amount.
• The overseas scheme might not adhere to the standards and regulatory framework required by UK law, potentially leading to further compliance issues and unexpected tax liabilities.
• Your pension could be less protected than in a QROPS, as non-QROPS schemes may not be subject to the same governance standards.
• It is unlikely you would receive any compensation should anything go wrong with the scheme.

If you are considering transferring your UK pension out of the UK, we recommend, as an expat, that you seek independent advice before committing to an overseas scheme to ensure that you only transfer to an officially recognised HMRC QROPS scheme.

This ensures compliance with UK regulations and gives you security in how your pension will be managed and taxed.

A UK SIPP (self-invested personal pension) may be a more suited route for you, so please book a 15-minute complimentary call to discuss your options.

Given the tax complexities associated with QROPS, you should get professional UK expat tax advice. This will allow you to fully understand the tax implications on your income and the scheme’s suitability before finalising any QROPS pension transfer.

Why Consider a QROPS Pension Transfer

Opting for a QROPS pension transfer can be a strategic financial decision for expats. Here are the key reasons why a QROPS pension transfer might be beneficial for you:

• Tax efficiency
• Currency flexibility.
• Estate planning.
• Consolidating finances.

Tax Efficiency

A QROPS can often offer favourable tax treatment compared to UK pensions for income and inheritance tax. However, the tax benefits can vary depending on where the QROPS is based and your country of residence.

Certain QROPS jurisdictions offer favourable double taxation agreements, such as Malta or others that deduct tax on crystallisation, such as Gibraltar. You need to ensure that you choose the most tax-efficient jurisdiction depending on your residency at retirement.

Currency Flexibility

With many QROPS providers, you can choose the currency in which you receive your pension payments, along with the ability to invest in a wide range of underlying assets with a currency overlay whilst growing your fund.

This flexibility can be advantageous for expats when managing currency exchange risks.

Estate Planning

QROPS can provide more favourable estate planning terms for passing your pension to your beneficiaries when you die compared to UK defined benefit pensions.

They often provide more flexibility regarding who can benefit and how your benefits are distributed.

A UK SIPP (self-invested personal pension) may be a more suited route for you, so please book a 15-minute complimentary call to discuss your options.

Consolidating Finances

For expats, consolidating pensions into a QROPS can simplify financial management by having your retirement savings in one place, aligned with your country of residence and save you money on fees.

QROPS Benefits and Drawbacks

For British expats, transferring a pension into a QROPS can offer several advantages and some drawbacks. Understanding these pros and cons is crucial for making an informed decision.

While QROPS can offer significant advantages for British expats, particularly regarding tax efficiency and flexibility, they also carry risks and complexities.

It’s essential to thoroughly evaluate these factors and seek professional financial advice before proceeding with a QROPS transfer.

Choosing the Right QROPS Scheme

Selecting the right QROPS is crucial for a British expat. Your choice will depend on various factors, including the country you reside in, your retirement goals, and the features of the different QROPS schemes.

Critical considerations for selecting an effective QROPS include opting for a scheme that is managed effectively within a stable, well-regulated, and low-tax jurisdiction.

However, AHR Group advises everyone considering a QROPS transfer to speak with a qualified and regulated adviser before transferring to a QROPS to ensure you are on the best QROPS scheme for your circumstances.

Can I Transfer My QROPS to Another QROPS?

Yes, you can transfer your QROPS to another QROPS, provided that both schemes comply with the rules set by HMRC in the UK. This process allows flexibility in managing your pension if your circumstances or retirement plans change.

Why would I transfer from one QROPS to another?

Transferring your QROPS to another can be beneficial. Here are some common reasons why you might consider this type of transfer.

Tax Efficiency

If you move to a different country or if tax laws change, another QROPS jurisdiction might offer more favourable tax treatment for your pension savings.

Investment Options

Different QROPS provide varying investment opportunities. A transfer might suit you if you find another scheme offering investment choices more suited to your risk tolerance or investment strategy.

Regulatory Changes

Changes in pension regulations either in the QROPS jurisdiction or in your country of residence might require you to make a transfer to maintain compliance or to take advantage of new benefits.

Costs and Fees

If another QROPS offers lower fees or a more cost-effective structure, it could make financial sense to transfer to reduce overheads on your pension.

As an internationally regulated advisory firm, we have secured competitively priced options with trustees we have worked alongside for years and can offer cost-saving alternatives to your existing providers.

If you are considering switching to another QROPS, you should consult with a regulated and qualified financial adviser who is experienced in both the UK pension transfer rules and regulations and the international QROPS market.

They can thoroughly review your current QROPS and recommend whether a transfer would be in your best interest.

Can I Transfer My QROPS Back to the UK?

You can transfer your QROPS back to the UK pension regime. However, there are several factors you should consider:

• The UK pension scheme you are considering must be recognised and registered with HMRC to accept transfers from a QROPS.
• Be aware of any potential tax implications during the transfer. This can include exit charges from the QROPS or tax charges upon receipt in the UK.
• What are the fees for transferring your pension back to the UK? These can come from both the QROPS provider and the UK pension scheme.

Given the complexity and potential financial implications, we advise that you consult with a pension specialist. They can provide tailored advice and ensure the transfer aligns with your financial goals.

How Do You Make a QROPS Pension Transfer?

Transferring to a QROPS involves a series of steps to ensure the process complies with UK and overseas regulations.

Setting up a QROPS is similar to any pension transfer, but here are the fundamental steps you need to consider.

1. Seek expat financial advice
   Before proceeding, consult with a financial advisor experienced in expat pension transfers. They can provide advice tailored to your circumstances and help you understand the implications of transferring to a QROPS.Financial advisers can work with you to complete your QROPS pension transfer, so you don’t have to do anything.
2. Check the HMRC QROPS list
   You must ensure the overseas scheme you wish to transfer to is on HMRC’s QROPS list.
3. Speak to your current UK pension provider
   Speak to your current pension provider to confirm a possible QROPS transfer. You must complete and submit the necessary ‘transfer out’ forms to initiate the process.
4. Contact your preferred QROPS provider
   Research and select a QROPS that suits your financial needs and goals. Consider the jurisdiction, tax efficiency, investment options, and the scheme’s track record.You must contact your QROPS provider to get the scheme’s details and determine if they accept an overseas transfer.
5. Complete Form APSS263
   To complete a QROPS pension transfer, you must download and complete Form APSS26. Once filled in, you must give this to your UK pension provider.

What Can I Do If I’m Unhappy With My Current QROPS?

You should evaluate the performance of your QROPS by the returns on investment and how well it aligns with your retirement goals and risk tolerance.

There are several key red flags to be aware of when considering the performance of your QROPS and how it was sold to you:

• What led you to discover the opportunity to invest in a QROPS? Were you unexpectedly contacted with promises of unlocking your ‘frozen’ pension and making it ‘tax-free’?
• Do you fully understand the costs associated with your QROPS? A legitimate professional wealth financial advisory service should always provide a complete breakdown of all upfront and ongoing fees.
• Were you recommended to transfer your UK pensions into a QROPS, managed within a commission-based product? This option usually has an extended lock-in period and lacks flexibility. Once the upfront commission has been paid, typically, adviser support diminishes, and communication becomes increasingly more complex.
• Have you noticed that your pension value has yet to grow? The main reason your QROPS performance is flat is the total costs charged eat away at growth. This can be as high as 7% annually. Such steep charges can significantly hinder your investment returns.
• Have you been sold investments with guarantees, such as structured products? These products are very sophisticated and should not be recommended to the average pension holder.
• Has your adviser recommended moving your portfolio around different investments despite no improvement to the fund’s performance? This could be a sign your adviser is ‘churning’ your portfolio, where you are paying commissions each time you move your fund.

If you are unsatisfied with your existing QROPS, we offer a complimentary review to enhance its performance. We’ll work with you, providing clear and transparent advice, to ensure your QROPS is aligned with your goals.

Get a Complimentary Expert QROPS Review

At AHR Group, we specialise in giving British expats a clear, honest perspective on their QROPS.

Our complimentary QROPS review will analyse whether your QROPS is thriving or could benefit from expert intervention.

What We Offer in Our Comprehensive QROPS Review:

• Full Analysis of Your Current QROPS: We look into your current QROPS setup, evaluating its performance against industry benchmarks. This analysis helps us understand how your pension is doing.
• Identification of Potential Issues: Our experts will pinpoint areas where your QROPS may not be living up to its potential. This includes assessing fees, investment choices, and overall strategy alignment with your retirement goals.
• Bespoke Recommendations: Based on our analysis, we’ll provide tailored advice. This could range from confirming that your QROPS is well-positioned and should be maintained to suggesting strategic changes or alternative options, including keeping your QROPS where it is while we expertly manage the portfolio, potentially enhancing its performance.
• Flexible Options for Your Pension: We can suggest a range of strategies, from restructuring your current QROPS investments under our management to transferring to a different scheme if that’s more beneficial.
• Transparent, Jargon-Free Communication: All options will be presented side-by-side with complete financial modelling and retirement income cash flow forecasting, communicated in clear, understandable language.
• Quick, Hassle-Free Transition: If you choose to have us manage your portfolio, we can implement changes swiftly, often within four weeks, ensuring a smooth and efficient process.
• Zero-Obligation Advice: Walk away with valuable insights at no cost. You’re free to use our recommendations as you see fit. You are not obligated to move your pension or engage our services further.
• The AHR Group Advantage: As your trusted advisor, we offer guidance throughout your lifetime, covering all aspects of financial, tax, and estate planning, including your retirement planning journey and multi-generational wealth management.

Why Our Complimentary QROPS Review is Different:

• Expertise with Integrity: Our team has extensive experience managing QROPS for British expats. We stay updated on the latest regulations and best practices to offer you the most relevant and ethical advice.
• Client-Centric Approach: We recognise that every expat’s situation is unique. Our review is customised to align with your retirement goals and financial position.
• Transparent, No-Catch Service: As the leading cross-border financial advisory, we understand the challenges expats face, particularly those who have received subpar financial advice from other firms. Our mission is to rectify this by providing upfront, high-quality guidance, thereby setting a new standard in international pension management.
• Long-Term Client Relationships: Our philosophy is built on lasting partnerships. The satisfaction and success of our clients are the cornerstones of our service, allowing us the flexibility to offer significant upfront value.

Avoiding a QROPS Scam

When considering a QROPS transfer, being aware of potential scams is vital. The landscape of international pensions can be complex and less regulated, making it an area where scams can and do occur. Here are key steps to protect yourself:

• Conduct thorough research on any QROPS provider or scheme you’re considering. Look for reviews, testimonials, and any red flags in their history.
• Ensure the QROPS is registered with HMRC and complies with all relevant regulations.
• Consult an independent financial advisor specialising in international pension transfers. They can provide unbiased advice and help you identify any potential risks.
• Be cautious of unsolicited calls, emails, or messages offering QROPS transfers or promising unusually high returns. These are common tactics used in pension scams.
• Familiarise yourself with any fees associated with the QROPS transfer. High or hidden fees can be a sign of a scam.
• Be wary of anyone who tries to pressure you into making a quick decision. Legitimate financial advisers and QROPS providers will give you time to consider your options.
• A reputable QROPS provider should be transparent about their investment strategies, risks, and processes. Lack of clarity is a warning sign.

The Importance of QROPS Pension Transfer Advice

Seeking professional financial advice is crucial when considering a QROPS pension transfer. A dedicated cross-border pension transfer financial adviser can help you with the following:

• Assess your current pension, situation and plans for the future and determine whether it’s in your best interest to transfer to a QROPS.
• Compare the different QROPS pension schemes and their investment options.
• Help you understand the tax implications and potential risks associated with QROPS pension transfers.