QROPS in Spain

On becoming an Expat many people will have left their pensions back in the UK. These pensions will be subject to UK pension law regardless of where you are resident.  This means the pension income maybe subject to UK income tax at 20% deducted at source or higher and the member payment charge of up to 55% may apply on death.

 

How did QROPS come about?

Under the Pension Simplification Act in April 2006 (also known as A-Day) expatriates or UK residents who have moved overseas or can demonstrate the intention to do so can transfer their UK pension rights to a non-UK pension scheme. The transfer must be made to a Qualifying Recognised Overseas Pension Scheme (QROPS), that is recognised by HMRC. In so doing an expat can avoid many of the restrictions associated with a UK pension scheme.

Further sweeping changes to UK Pensions were announced in the Budget of 2015 and have cut a swathe through what used to be “de rigueur” for financial advice on pensions. Add to that the dramatic reduction in the number of available QROPS brought about by HMRC writing to all such schemes to ask them to re-state their suitability to on the HMRC list (link below) and we have a new “pensions landscape” to consider.

HMRC produce a list of recognised schemes on their website, so you can establish that the scheme is legitimate. www.hmrc.gov.uk/pensionschemes/qrops.pdf

QROPS are now referred to as ROPS, HMRC having dropped the word "qualifying" as this gave a false impression that they were somehow endorsed by HMRC (however, we will continue to refer to them as QROPS – the more widely recognised term).

So what about QROPS?

You could be forgiven for thinking that HMRC would simply “export” the new pension freedoms over to QROPS. This however is not practical for a few reasons:

  • Different jurisdictions have different rules.
  • The flexibility and pension freedoms now available in the UK do not apply to QROPS from April 2015.
  • QROPS benefits cannot be taken prior to age 55 except in the case of serious ill health. Taking QROPS benefits prior to age 55 was one of the big “sales pushes” of previous schemes. This has been removed and is one of the main reasons such a large number of schemes have disappeared from the HMRC list.

Advantages

The advantages of a QROPS can be significant but the decision to move your pension should not be taken lightly. It may well be that your current UK pension has guaranteed benefits such as a Guaranteed Minimum Pension (GMP) or has a Guaranteed Annuity Rate (GAR). In all cases a full analysis and recommendation report should be requested that looks at not only tax benefits but also costs and scheme benefits so that an unbiased review can be undertaken.

The QROPS market is a mature, established area now and because of this the costs of setting up a QROPS have fallen to the extent that many QROPS companies have special schemes for those with funds as low as £25,000 and of course unlimited at the top of the market.

Advice is Crucial

Pension legislation, tax implications and the recent changes / freedoms have forever changed Pension Advice.  This is a hugely complex area of financial advice for Expats and we have not even discussed the various investments which can be held within a pension. 

Even the HMRC state in their QROPS pages that “You should seek suitable professional advice”. Speaking as Independent Financial Advisers in Mallorca we clearly have a vested interest in saying “we couldn’t agree more”. But you have to consider that you also have a vested interest in seeking Qualified, Independent Financial Advice, after all the cost of making a mistake will far outweigh the cost of advice.

 

Get in touch via our Contact Us page and download our FREE QROPS Guide here.  Or perhaps you would like to attend a Pension Seminar?

 

 

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