QROPS and QNUPS

Pensions For Britons Remaining Overseas 

 

Pensions are a complicated business, and this area of financial planning can be even more complex for expats, writes Iain Yule.
 
 
Many expats may find themselves faced with a ‘jumble’ of pensions gathered during a globally mobile career. Many may also have UK-based pensions to which they contributed before leaving the UK, and which have now been frozen.
 
Making sense of a myriad of plans and schemes can be daunting, say experts at The Fry Group. To add to the confusion, expats may find themselves faced with additional decisions including whether to retire back ‘home’ to the UK, remain overseas or move to another country.
 
 
 
Qualifying recognised overseas pension scheme
 
In 2006, in an attempt to simplify the situation for ‘committed’ expats (those intending to remain overseas), the UK government harmonised the way pension contributions are treated for tax. This allowed long-term British expats to relocate their UK pensions into a QROPS (qualifying recognised overseas pension scheme) without incurring a tax charge – basically enabling a UK pension to join an expat when they intended to remain away from the UK for the medium to long term.
 
QROPS provide greater flexibility for expats – giving better control over the management and content of investments. So, for example, an expat living in the eurozone and using a QROPS can run their pension assets in euros (and so avoid currency fluctuations) and benefit from tax freedom at source on the income.
 
However, QROPS may not suit all long-term expats. Some UK pensions include significant benefits, and transferring them into a QROPS may result in such benefits being lost.
 
Tax freedom on the pension income can also be achieved through simpler routes (e.g. relying on double taxation agreements). QROPS can also be expensive, although increased competition has helped reduce costs.
 
 
Qualifying non-UK pension scheme
 
For more flexible pension planning, placing some capital within a QNUPS (qualifying
 
non-UK pension scheme) might be considered within your overall pension solution. There are some general rules that a QNUPS must adhere to:
 
  • It must be an overseas pension scheme established in the EU or territory with a double taxation agreement with the UK, plus exchange of information, or at least 70% of the fund must provide the member an income for life. 
  • Pension benefits from age 55-plus unless in the case of ill health.  
  • Membership of the scheme is open to persons resident in the country or territory in which it is established.
  • In terms of spin-off benefits, it offers:
  • Inheritance tax protected from day one. 
  • 10 per cent foreign pension allowance for returning expats.  
  • Full transfer of fund on death with no tax charge.
These are complicated products and much depends on your own circumstances. A detailed review of your financial and residence position should be undertaken by a suitably qualified UK-regulated financial adviser before any decisions are made.
 
 
Iain Yule is the Editorial Director of World of Expats.