Qrops Benefits & Charges

There are huge benefits for expatriates who transfer their UK pensions to a QROPS. Here is a list of some of the main points:

No Liability to UK Tax on Pension Income

A non UK resident drawing a UK pension remains subject to UK tax on the income, unless he or she resides in a country with a double tax treaty with the UK that contains an article on pensions. If the member resides in a country with no double tax treaty with the UK, they may be subject to a higher tax rate than the top rate of tax in their country of residence. Transfer to a QROPS ensures that, if tax is due on pension income, it will only be taxable in the country of residence.

No Requirement to Purchase an Annuity or Alternatively Secured Pension

Members of UK registered pension schemes can currently defer taking their pension until they reach age 75. However, once the member turns 75, they must either buy an annuity to provide an income for life, or opt to take an ASP. Either way, the member is required to take an income regardless of whether they need it or not. The UK rules also limit the scope to leave the fund to the member’s heirs.

Depending on the specific scheme rules, transferring to a QROPS may allow the member to continue to defer taking a pension beyond age 75.

Ability to Leave Remaining Fund to Heirs

The standard UK pensions legislation significantly restricts the member’s ability to leave the pension fund to their heirs on death. If a member is drawing an unsecured pension prior to age 75, the remaining fund can be paid as a lump sum to heirs, less a tax charge equal to 35% of the lump sum.

If the member dies after age 75 in ASP, then any lump sum paid to heirs is potentially liable to inheritance tax at 40%.

Furthermore, the payment can also become liable to an authorised payment charge, an unauthorised payment surcharge and a scheme sanction charge, which can result in a total tax liability equal to 82% of the fund value.

QROPS can help. Transferring the UK pension to a QROPS may allow the member to leave lump sums without deduction of tax to heirs.

Currency

A standard UK pension will usually only pay in Sterling, which means the member runs an exchange rate risk in respect of pension income, in addition to incurring charges in order to convert the pension payments to the currency of their country of residence.

Transferring to a QROPS means that the pension payments can be made in the local currency, thus eliminating exchange rate risk.
Investment Freedom

A QROPS give access to investment links that are currently not available to a UK registered scheme. The most obvious example is a direct holding in residential property.

No Lifetime Allowance Charge

QROPS Members will no longer be subject to the Lifetime Allowance Charge.

This is a restriction on the total permitted value of an individual’s total accrued fund value in UK registered pensions, currently £1.8m. Those who exceed this value face a potential tax liability of 55% on the excess funds on retirement.

Potential Pitfalls of Transfer to a QROPS

Whilst there are sound reasons why a transfer to a QROPS is beneficial to individuals, there are several pitfalls you need to be aware of. For example:

Returning to the UK

If you return to the UK, the UK pensions legislation will apply to the scheme. This is something that should be fully planned and our expert advisers can explain in full to you.

Charges

Until recently the cost of the transfer and the management of the funds prohibited those with small pensions from utilizing Qrops. Qrops Adviser has negotiated preferential charging structures with many of the leading Qrops Providers around the globe. It is now cost effective for anyone to transfer into a Qrops. From as little as £25k can be transferred with no upper limit. To receive a free full illustration of what the charges will be for your situation, contact us today.

Loss of Protected Rights

Transferring to a QROPS may result in the loss of certain protected rights, including contracted out rights, or rights accrued under a defined benefit scheme. Our advisers will outline all pros and cons of transferring to a QROPS relating to you situation.