QROPS stands for Qualifying Recognised Overseas Pension Scheme, and enables a pension holder to move their British pension into an overseas pension if they decide to permanently leave the UK. Financial consultants have been very busy since 2006 helping retirees all over the world to transfer their UK pension into a QROPS pension scheme. The advantages of a QROPS can be immense – from enhanced investment performance, inheritance tax mitigation, the ability to avoid having to purchase an annuity – all these factors and more contribute to why the popularity of QROPS transfers have sky rocketed since they were introduced in 2006. The regulations governing QROPS are fairly simple – if you are based outside Britain, or intend to leave the UK permanently within 12 months, you may transfer your pension fund into a QROPS scheme, subject to the regulations in the country where the QROPS pension is based.
What are the Benefits of QROPS?
There are many advantages of a QROPS pension. Most retirees will benefit from an enhanced value tax-free lump sum (if they choose to take this option). In addition, a QROPS scheme member can avoid having to purchase an annuity, which in recent years has proved a significant benefit, given the very poor annuity rates currently on offer. Tax minimisation strategies are also a key consideration. Currently in the UK, inheritance tax is payable at the rate of 35% if a pension holder dies before 75 and has an income draw down scheme. On the death of his or her spouse after the age of 75, there may be an additional tax charge on the remainder of the pension funds of 82%. These taxes can all be avoided by a QROPS pension, provided that the person has been living outside the UK for more than 5 years. Finally, there are practical benefits such as receiving a pension in the currency of the country where you are living. This can save on expensive currency exchange transfers, and eliminates the risk of currency fluctuations, which can eat into your monthly pension income.