Qualifying Recognised Overseas Pension Schemes (QROPS) are pensions based in offshore financial centres that offer tax breaks and investment opportunities that are often unavailable to UK-based retirement savers.

The market is vast – around 3,000 QROPS pensions are offered by providers based in 46 countries.

In the first five years, all QROPS generally stick to guidelines laid down by HM Revenue & Customs in the UK.

After that, local pension rules apply – and in some cases, these can make a big difference to tax-free lump sum payouts and income drawdown.

Finding the right QROPS

Shopping for the right QROPS is not a matter of filling in a couple of forms with a chosen provider.

A QROPS pension is a complicated and important investment that needs careful consideration.

To find the right QROPS, a retirement saver should work with an experienced and regulated independent financial adviser.

Before settling on a financial centre and a provider, the adviser should carry out a thorough pension transfer value analysis.

This analysis looks at:

  • The current value of any funds in a UK-registered pension scheme. This is a good time to consolidate scattered savings to cut costs and maximise fund growth
  • Tax issues between the UK, the financial centre where the QROPS is based and the place where the retirement saver will live
  • Investment options – like attitude towards risk and expected returns

Once the analysis is complete, a short list of suitable QROPS jurisdictions and providers that match the points highlighted in the review should emerge.

How QROPS work

QROPS providers are detailed on a list published by HMRC every couple of weeks or so. Read the Frequently Asked Questions about the QROPS List here

British pension schemes are only allowed to transfer into a QROPS on the list – but inclusion on the list is not approval of a QROPS by HMRC. Providers self-certify their schemes meet the guidelines the British tax man laid down, but some have fallen short of the standards required in the past and have been closed or banned from taking on new business.

QROPS rules closely follow those of British registered pensions, although many offer more flexible investment options that include a wider range of markets, commodities and currencies.

Like British pensions, the minimum earliest age for retirement is generally 55 years old – but special provisions apply to someone who is medically retired.

Most QROPS pay a 25% – 30% tax-free lump sum on retirement and leave at least 70% of the fund intact for paying pension benefits once the investor has given up work.

Like onshore pensions, drawdown can be delayed, and there is no obligation to buy an annuity.

One extra benefit of a QROPS is any unused fund is generally exempt from inheritance tax.