A QROPS Pension Transfer is a pension transfer into a Qualifying Recognized Overseas Pension Scheme (you can transfer multiple pensions).
If you are leaving the UK or are already living abroad and have a private UK Pension Plan or a SIPP, you may qualify for a QROPS Pension Transfer.
The QROPS Pension Transfer scheme needs to be an HMRC approved scheme and generally, individuals prefer to transfer their pensions to a stable offshore jurisdiction with similar financial principles to the UK (e.g. Channel Islands). Another benefit of the Channel Islands is that you can leave it in a hard currency.
Who Qualifies for a QROPS Pension Transfer?
In order to qualify for a QROPS Pension Transfer you need to be a non-tax resident of the UK or planning to leave in the next 12 months. After 5 years the QROPS Trustees no longer have to report any withdrawals or payments to the HRMC, as the QROPS Pension transfer Scheme is simply subject to the laws of the relevant overseas jurisdiction.
In most instances, if you qualify for a QROPS, the benefits of a pension transfer are numerous.
What are the benefits of a QROPS?
These QROPS benefits can be summarized as follows:
o Avoidance of IHT on the pension fund.
o The ability to leave 100% of your pension to a nominated beneficiary.
o No need to purchase an annuity (although this is still possible)
o Protection against future creditors.
o Improved investment flexibility
o Tax efficiency -- not taxed at source.
o Choice of currency.
o Take income more tax efficiently from your pension.
In addition, you are no longer required to purchase an annuity by 75, or face an 82% tax charge!
There are various options regarding investment flexibility of your QROPS Pension Transfer scheme. Some schemes allow you to choose the investments yourself, while others require a financial institution to choose the investments on your behalf. It all depends on your requirements and where you setup your QROPS.
In most instances the benefits of a QROPS Pension Transfer, make the transfer of a pension to a secure offshore jurisdiction an absolute "no brainer."
Yet, it is extremely important to note with some of the older pension plans, especially final salary scheme plans, it may not be in your best interests to transfer your pension to a QROPS. This however, should be discussed with a suitably qualified QROPS adviser. Even if you have a final salary scheme pension plan, you should seek a professional opinion on whether or not a QROPS is beneficial.
The Safety of Your Pension in a QROPS
There are two issues to consider that impact the security of your pension. Firstly the jurisdiction of the QROPS and secondly, the underlying funds in the QROPS.
1. QROPS - Jurisdiction
A major reason for choosing the Channel Islands as a jurisdiction for your QROPS Pension Transfer, is due to the financial stability and security that they offer. The Channel Islands are extremely well regulated and have strong investor principles, similar to the UK and remain on the whitelist of offshore financial centres.
2. QROPS - Underlying Investments
The greatest risk with a QROPS is the choice and performance of the underlying investment funds. However, while your fund is in the UK it is subject to the same risk. Many pension holders in the UK have seen the values of their pensions dramatically decline as the underlying funds have underperformed.
Although QROPS schemes do not have capital protection or capital guarantees, it is possible invest in funds that offer this. Thus, deciding on the underlying funds is an extremely important decision. It is important to note that a QROPS Pension Transfer, offers greater investment flexibility and fund choice.
What is the Cost of a QROPS?
When you consider the benefits of a QROPS the costs are not a significant factor. The fact that you can pass on your pension to your beneficiaries should something happen to you, is a major reason that cost is not a factor. It is better that your beneficiaries receive something rather than nothing.
That being said, the cost of a QROPS is normally made up of a fixed cost as well as a variable cost. Thus, the larger the value of the pension being invested, the lower the costs are as a percentage. You should expect a good QROPS scheme to cost around 2% p.a. on the value. If you consider that this cost is generally already recovered in the tax saving of a QROPS, it really proves the benefits of a QROPS Pension Transfer, and why it is often a "no brainer."
How do I go about using a QROPS Pension Transfer?
Transferring a UK pension or "frozen" UK pension into a QROPS is a lengthy process. It is one that you will need to do in consultation with an accredited financial adviser. You cannot do a QROPS on your own as pension providers will only work with an accredited financial institution.
The first step in the lengthy process is to complete a Valuation request. This form allows your financial adviser to receive the valuation and specific pension details from your pension provider. Once this information is received (which can take up to 90 days) the adviser will analyze the information and decide if it is in your best interests to transfer your UK pension to a QROPS.
If it is in your best interests, the next step is to decide on the QROPS jurisdiction and begin setting up the QROPS structure. Once the QROPS pension structure is setup, the existing pension company will transfer your pension to the HMRC approved QROPS Pension Plan.