QROPS

In April 2006 the UK government gave the ability for a UK pension to be transferred to an overseas pension provided it met certain qualifying rules, which broadly followed the UK legislation. QROPS or Qualifying Recognised Overseas Pension schemes give a number of benefits to expats. For the first 5 years of the new pension the trustees of the new pension scheme have to report once a year to the UK Inland Revenue to confirm continuing qualification with the rules.

With effect from the 6th of April 2012 new legislation changed the QROPS tax rules. Those people who may have a QROPS or qualifying recognized overseas pension are those that have retired overseas and transferred their pension pot to one of the HMRCs recognized schemes. This means that they then become subject to the tax laws within that country.

If looking to take advantage of these provisions you will need to take advice to ensure that the scheme qualifies, that the processes are correctly followed and that the reporting requirements are complied with and to ensure that you understand the benefits and conditions so that you can decide whether it is right for you. 

One advantage of QROPS is that after 5 years the pension can be moved without having to report to the UK and with no loss of UK tax relief.   It is therefore possible to transfer your fund to another investment which does not require you to purchase an annuity.

Pension annuities have advantages, but also disadvantages.  A pension annuity means that you exchange the capital that you have built up in your pension less any tax free cash you are allowed to tax, to an annuity provider who in return guarantees you a lifetime income for the rest of your life (however long you live).   This means that you know how much income you are going to get and you know you will get this for life. However, the amount of interest you get reflects interest rates and with interest rates currently at very low levels this has meant many people have had smaller pensions than they might have expected.  Also under this arrangement the capital has gone for ever to buy the annuity.

Since you do not have to buy an annuity with a QROPS it is possible to live off the interest on the retained fund, draw down on the capital only if necessary and leave the balance of the capital as a legacy.  Advice is however, essential as there is always the risk that the rules will be changed or interpreted differently by HMRC.

It should be noted that in the legislation that introduced QROPS there were two qualifying conditions, both involving a 5 year requirement.  Firstly, a person must be non UK resident for 5 years before they could make changes to the QROPS and either take the cash or move it to an investment option that does not involve an annuity. The other requirement was that the trustees of a scheme must report to the HMRC for a period of 5 years and during this time the scheme must remain a qualifying scheme.

There is some ambiguity in the legislation, but the safest thing is to ensure that you comply with both elements.