Since 2006, individuals with a UK pension who either plan to live or do live abroad can transfer their funds into a Qualified Recognised Overseas Pension Scheme – or QROPS.
Once a transfer has been made, and the member has lived outside of the UK for five years, the fund begins to follow the legislation of the country where it is based, and not the UK’s.
Because of this QROPS can offer significant flexibility, taxation, and investment benefits – meaning the pension holder can ultimately make the most of their pension provisions.
As long as the scheme abides by HM Revenue and Customs (HMRC) legislation, there are no restrictions regarding which specific jurisdiction a pension holder must transfer their pension into – meaning the pension holder does not have to base their QROPS in their country of residence.
This allows people who reside in a jurisdiction which does not have QROPS to benefit from the legislation.
However, there are several other reasons you may consider a third country QROPS, including:
- Political or simply financial instability in the country of residence.
- Language barriers.
- Lack of investment and/or currency options.
- Lack of flexibility – i.e. a scheme may not permit another transfer of the pension.
- Small lump sum provisions (whilst the UK limits the tax-free lump sum a pensioner can receive to 25% of the fund, some QROPS jurisdictions allow a scheme member to take up to 30% of the fund tax free – but not all.)
- High costs to maintain QROPS (it is worth noting that generally, competition in the third country QROPS industry drives down set up and maintenance costs for pension savers).
- High inheritance and wealth taxes.
- Lack of QROPS legislation knowledge – including on the reporting requirements.
- Lack of a proper pension regulator – which is not only a worry to an individual hoping to transfer their pension into the country, but also may mean the country’s pension offering does not comply with HMRC legislation.
Popular choices for third country QROPS include Malta and Gibraltar.
Both enjoy long-standing political stability, a relationship with HMRC with regards to QROPS, and English-speaking advisors and legislation.
To learn more about whether a third country QROPS is the best option for you, you should consult with a regulated, independent financial advisor who can evaluate your current position, future plans and uniqure needs to source the best solution for your needs.
