A Qualifying Recognised Overseas Pension Scheme (QROPS) can be a great option for those now living in the US, but with an accumulated UK pension remaining in Britain.
There are tax advantages and investment flexibility options offed by a QROPS which are not available in the UK, as well as a choice of currency denomination to avoid exchange rate fluctuations and the inherent danger of devaluation upon withdrawal.
QROPS are suited to, and designed for, expatriates looking to retire overseas, but for those currently working abroad and with the intention of moving back to the UK, pensions are best off being left where they are.
For those residing in the US and hoping to retire there, a QROPS can be complex, although in fact the process of transferring a UK scheme into an overseas option without fear of federal income tax on contributions and growth has become far more clear-cut in the last two years.
The Lowdown
There are almost 700,000 UK residing in the US, and recent research conducted by the Telegraph suggests that around 27% of the average expat’s wealth sits in a pension scheme. There are also a huge number of repatriated US citizens with pensions accumulated from time spent working in the UK. This has created vast interest in the QROPS pension model from a US perspective, but the general consensus was that the benefits just weren’t accessible to anyone living under the strict regime of US federal tax laws.
The problem with UK pensions being drawn in America is that they are not recognised by the IRS, and as such, all growth and income is likely to be subject to UK and US taxation. Although the taxation prognosis undeniably rests on a case-by-case basis (as we all like to say – there is no ‘one size fits all’ approach to QROPS, especially within the USA), some may find that the tax liability on drawing a UK pension in the States basically renders the entire process obsolete. A QROPS offers a way around this.
Changes
The schemes were previously seen as a good option to keep UK pension holders who no longer reside in the country, closer to their retirement funds, unless they were in America. This all changed when the Double Taxation Treaty signed by the States with Malta opened up the door for any pension based in the EU member to be drawn in the States without fear of penalty. A variety of QROPS were very quickly designed to cater for the specifics desired by US-based expats wanting to transfer, and Malta as a jurisdiction is one of the top three providing the schemes.
A QROPS should only be considered as an option in light of advice from an overseas financial advisor with experience in the transfer of pensions and knowledge of multi-jurisdictions. An unfortunate symptom of misplaced knowledge is that UK-based advisors with no experience of QROPS directly, often overlook it when trying to help clients planning to move overseas, a problem which is currently a real concern to the QROPS Bureau based in the UK.
