The QROPS List | What You Need to Know
QROPS, (Qualifying Recognised Overseas Pensions Schemes) were once the darlings of the offshore pension world.
Allowing the beneficial owner to mitigate Lifetime Allowance Tax (LTA) liabilities, offer significant Inheritance Tax (IHT) benefits and allow excess to an extensive and niche, range of investments.
However, as with so many investment products over the years, ROPS (Recognised Overseas Pension Scheme) were missold, resulting in losses for their members.
Furthermore, with the scrapping of the LTA at the Chancellors budget,(March 2023), one of their key benefits has been removed. We take a look at Qualifying Recognised Overseas Pension Scheme QROPS, the QROPS / ROPS list in particular and you what you need to know.
What is a QROPS
QROPS stands for Qualified Recognized Overseas Pension Scheme. It is a type of pension scheme that is based outside the United Kingdom but meets certain requirements set by Her Majesty's Revenue and Customs (HMRC), the tax authority in the UK. QROPS was introduced to allow individuals who have built up pension savings in the UK to transfer their funds to a pension scheme in another country while still retaining certain tax advantages.
In simple terms, QROPS is a mechanism that enables individuals who have accumulated a pension in the UK to move their pension savings to an overseas scheme. This can be beneficial for individuals who are planning to retire or live abroad, as it allows them to access their pension funds in a tax-efficient manner according to the laws and regulations of the chosen overseas jurisdiction.
Key Benefits of a QROPS
The key benefits of QROPS include:
Tax Efficiency: One of the primary benefits of QROPS is the potential for tax efficiency. Transferring your pension to a QROPS can offer tax advantages, such as the ability to take a lump sum payment that is not subject to UK taxation. The tax treatment will depend on the specific jurisdiction where the QROPS is established and the tax laws in that country.
Currency Choice: Transfers to a QROPS, allow you to have the potential to hold your funds in a currency other than British pounds. This can be beneficial if you plan to retire or live in a country with a different currency, as it reduces the risk of currency fluctuations affecting your pension income.
Investment Options: QROPS often offer a broader range of investment options compared to UK pension schemes. This can give you more control over how your pension funds are invested and the potential for higher returns. It is however worth noting it also allows unregulated investments which can result in frozen funds loss of capital.
Estate Planning: QROPS can provide advantages for estate planning purposes. In some cases, transferring your pension to a QROPS can help mitigate inheritance tax liabilities in the UK, and it may offer greater flexibility in passing on your pension funds to your chosen beneficiaries.
Portability: QROPS allows you to transfer your pension funds to an overseas jurisdiction, which can be beneficial if you plan to move or retire abroad. It provides the opportunity to consolidate multiple pension schemes into one, making it easier to manage your retirement savings.
It's important to note that the benefits of QROPS can vary depending on the specific QROPS scheme and the jurisdiction where it is established. Additionally, QROPS regulations and tax laws are subject to change, so it's essential to seek professional advice and stay updated on the latest regulations before making any decisions regarding your pension.
International SIPP vs QROPS
The introduction of the International SIPP mitigated a number of the benefits of a QROPS. Specifically, it allowed you to retain the protection and regulation of the UK whilst enjoying the benefits of an offshore product. As per the above, this covers currency, investment options and portability. Benefits do remain however with regards to IHT and the removal of your pension from UK juristriction.
QROPS List
The QROPS List is provided by HMRC and shows a list of pension schemes that meet the QROPS requirements, and meet the conditions set out by the UK Government. This HMRC list is commonly known as the "QROPS List" or the "Recognied Overseas Pension Scheme List." It names every HMRC registered pension schemes list. It includes pension schemes from various countries around the world that have applied and been approved by the HMRC.
HMRC periodically updates the QROPS List to reflect changes in approved schemes. It is important for individuals considering the transfer of their UK pension funds to, to consult the latest version of the list. This will ensure that their chosen scheme is still recognized by the HMRC and eligible for the associated tax benefits. If it is not included on the list, it does qualify.
The receiving schemes can be broken down into 2 categories:
Local Company Schemes
These relate to any QROPS held outside of Malta, Guernsey, Jersey, Gibraltar and the Isle of Man. In order to transfer to the named schemes you will need to be resident in the country and employed by the named company.
Independent International Schemes
These schemes are open to any individual however will not necessarily offer any benefits and can create significant downside such as the Overseas Transfer Charge depending on your location.
The most commonly used QROPS are located in Malta. Malta has a Double Taxation Agreement with over 60 countries allowing your withdrawals to be paid out gross. There are numerous providers to choose from ranging in cost, functionality, servicing, reputation and so on. Older schemes tend to be setup out of Gibraltar and the Isle of Man which will be mean capped drawdown (limited annual withdrawal amounts) and withholding taxes.
QROPS List - Our Verdict
Whilst a QROPS can still offer benefits in certain circumstances, the key benefits for the majority of pension holders are no longer in play. The introduction of an International SIPP and the removal of the Lifetime Allowance tax has changed the current landscape. It is however worth noting that UK Governmental policy is fluid.
Therefore, it is always prudent to plan ahead and ensure your retirement planning is aligned with your current and future goals.
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