The rules governing Qualifying Recognised Overseas Pension Scheme (QROPS) are carefully framed to make sure that retirement savers cannot gain an unfair financial or tax advantage from moving their funds offshore then otherwise allowed by the HMRC.
QROPS status for a pension does not change the rules about how the pension operates, but is more to do with how money is transferred between a UK and offshore pension.
QROPS rules basics
Every QROPS is based on the same pension blueprint drafted by HM Revenue & Customs.
The template insists:
- An official regulator in the country where the QROPS is based oversees the operation of the pension to protect the member’s interests
- That 70% of any fund transferred in to a QROPS from the UK or another QROPS is ring fenced to provide retirement benefits for the investor. These means the maximum tax free lump sum payment from a QROPS is 30% of the transfer fund value
- That no payments are made from the fund before the investor is 55 years old, unless special medical reasons apply
- That the QROPS is open to residents in the country where it is based as well as non-residents
- That all QROPS investors pay a similar rate of income tax on pension payments, regardless of which country they live in
The thinking at the forefront of any HMRC decision about QROPS is the schemes are designed to pay a pension in retirement for investors, and any scheme that short circuits or tries to abuse these rules is swiftly closed down.
Tax effective investments and payments
QROPS remain tax-effective retirement saving plans for British expats or international workers with UK pension rights.
Although the rules are explicit about managing and taxing QROPS, they do give investors much more flexibility in investing funds and drawing benefits.
Investments are open to more markets and commodities, while investments and payments are offered in most major currencies, cutting down on the costs of exchange rate fluctuation and the hassle of timing transfers.