How Pension Freedoms Limit QROPS Choice

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Qualifying Recognised Overseas Pension Scheme (QROPS) are an attractive retirement option for expats, but new pension freedoms can limit choice.

Although 40 financial centres offer more than 850 different pensions, one key point is whether the scheme is based in the European Union or not.

Before the freedoms were introduced in April 2015, the government intended to remove a longstanding rule that ring-fenced 70% of the transferred pension fund to pay retirement benefits for life to the saver.

However, a crucial decision was made at the 11th hour that removed the restriction for QROPS based in the European Union but not for those elsewhere.

The 70% rule

Then the Malta financial regulator aligned their pension legislation to allow flexible access to match the UK rules.

Malta is a full member state of the European Union.

Regulators in the Isle of Man and Guernsey have both indicated that new laws are on the way to allow flexible access as well – however QROPS rules clearly explain the 70% rule still applies to these financial centres as they are not part of the European Union.

HMRC has not indicated if and when the ban may be lifted.

This conflict between UK, European and local pension rules highlights how important choosing the right QROPS is and highlights just one of the factors retirement savers need to consider on transferring a UK pension overseas.

Transfer analysis

To complicate matters further, retirement savers who want to start a Malta QROPS do not have to live in Malta.

The Maltese pension regulator will allow pension payments to a retirement saver living anywhere but the UK providing they can show any tax that might be due is paid to the local tax authority – if not, the payments will be taxed in Malta.

Taking advice about transferring a UK pension to a QROPS needs input from a wide range of experts with qualifications and experience in how the financial and tax issues work in the UK, the QROPS centre and the country where the retirement saver is tax resident.

Switching to a QROPS requires a transfer analysis of the features and benefits of both the UK scheme and the receiving scheme – which is a requirement laid down by the Financial Conduct Authority (FCA) in the UK for any transfer out of a pension fund worth more than £30,000.

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