It’s well documented that the UK’s pension market is in a bad way. Falling investment returns, financial uncertainty the continual legislation changes are concerning enough for UK pension investors, but when you throw currency volatility into the mix as an expat, it’s relatively easy to see why Qualifying Recognised Overseas Pension Schemes (QROPS) are currently of such appeal.
Expatriates find themselves in the fortunate position of being able take advantage of the benefits offered by transferring their pension into a flexible overseas scheme – even those residing in the US.
For more in-depth analysis on the benefits of QROPS, download the FREE iExpats QROPS Guide
First Approval
In 2012, HMRC approved the first of numerous QROPS designed to cater for the growing number of US residents with pensions from their time working in the UK. These overseas schemes were set up in Malta due to analysis of the EU member’s Double Taxation Agreement with America. The document specifically deals with foreign pension payments between Malta and the States in a manner absent from DTA’s signed with other countries – including the UK.
The DTA was signed in 2011, and the development of a US-specific QROPS also coincided with the new design structure of the schemes in general, which heralded the dawn of a more sophisticated product that was able to meet the complex nature of US tax regulations.
Recognised
Since the introduction of Malta as a recognised jurisdiction, the southern European island has worked alongside HMRC to ensure its financial regulations meet the requirements to ensure that its operations continue to meet with the approval of the UK’s relative authority. This has seen Malta emerge as a primary jurisdiction for the larger QROPS providers, and many expatriates based in countries across the globe. There are now 22 QROPS based in Malta, which was only introduced as a scheme jurisdiction in 2012.
The benefit of a QROPS from the perspective of a saver exposed to the global taxation implications imposed by the US and its FATCA legislation can be extensive. QROPS are able to enable tax-efficiency on savings and contributions while complying with the new legislation, although the financial merits represented by such a scheme can only really be clarified on a case-by-case basis.
QROPS are approved by UK pension law, but are actually formed and held under the law of the individual overseas jurisdiction in which they are based. They must simultaneously comply with UK pension legislation too, in order to remain ‘recognised’ by HMRC.
Interest Surges
As well as tax efficiency, QROPS also offer a level of flexibility and investment choices not available in UK schemes. This factor, combined with the choice of currency to avoid future fluctuations and potential devaluation of any funds held in the UK upon drawdown, have created a surge of interest in QROPS amongst US citizens who formerly worked in the UK and hold a pension there, UK passport holders living or planning to retire in the States, and foreign nationals now living there but with a scheme which remains in the UK.
A QROPS is only suited to those planning to retire in a country other than Great Britain.
