Qualifying Recognised Overseas Pension Schemes were brought in by the previous government in 2006. As part of the Pension Simplification initiative rolled out in that year, QROPS provide foreign schemes for members of UK pensions who are moving overseas, without incurring a UK tax charge.
If you transfer your pension into a QROPS and remain outside Britain for at least 5 years, you wave the taxman goodbye forever. The 5 year timescale is significant because if you return within that time, you risk a tax bill.
During those first few years, your QROPS is obliged to make reports to HMRC about your pension’s activities. However, after that time has elapsed, the taxman no longer takes an interest in your pension affairs.
What kind of pension scheme can be awarded QROPS status? HMRC does not just look at the pension regulations of overseas countries generally to decide where a QROPS can be based. They look at the rules of individual schemes. Only when they are satisfied that a scheme is taxed and regulated as a pension in its own country does HMRC approve a foreign pension scheme as a QROPS.
Having been attracted to QROPS because they are outside of the UK income tax regime, you may be surprised to learn that tax may be payable on your QROPS in the country where it is based, or on the country where you receive its income (if different). However, this is a consideration that your QROPS adviser will bear in mind when choosing a suitable QROPS for you.
Tax is not the only reason why people look to QROPS. The growing choices and flexibility of QROPS are also attractive.
For instance, compulsory annuitisation has recently been earmarked for the chop by the UK government. However, with no firm timetable in place for its abolition, the obligation to have an income bearing product in place still appears like a large spectre in the background to anyone with a private UK pension approaching their 75th birthday.
Even when the rules have been changed, QROPS may still be able to offer more flexibility than UK pensions. After all, with over a thousand pension schemes to choose from in a variety of jurisdictions, offered by hundreds of financial institutions, the choice alone is appealing.
