What is a QROPS?
QROPS – Qualifying Recognised Overseas Pension Scheme
QROPS – Qualifying Recognised Overseas Pension Scheme is a term introduced by the UK Finance Act in April 2006. This was part of the UK pension simplification process with the 6 April 2006 often referred to as A‑Day.
Since April 2006 it has been possible to transfer a UK registered pension (whether deferred or in drawdown) to an overseas pension scheme which has obtained HMRC QROPS acceptance. The transfers can be undertaken by non‑UK residents – or those considering leaving the UK. Depending on the jurisdiction of the QROPS and country of residency QROPS may offer significant benefits.
While contributions to a UK pension plan can benefit from tax exemption, restrictions are normally placed on the benefits drawn from the pension. These restrictions may include:
- Lump sum withdrawal limited to 25% of pension value.
- Benefit payments subject to UK income tax.
- May be required to purchase an insurance company annuity.
- Dependent on the particular insurance company annuity, the potential loss of annuity residual value, or;
- Residual value of pension subject to HMRC tax charges, before it becomes part of your estate.
Some of the main benefits of Guernsey QROPS are:
- you are not required to buy an insurance company annuity, and more flexible drawdown arrangements may be permitted;
- pension assets are held as part of a trust structure with the trust having legal ownership and therefore upon the member’s death any residual value may be paid / allocated to the member’s nominated beneficiaries; and
- choice of currency for investment and benefit payment other than sterling which may mitigate exchange rate risks and exposure.
For an overseas pension scheme to be accepted as a QROPS it will need to comply with various conditions and agree to certain undertakings.
In summary the key conditions and undertakings that a Trustee to a Horizon QROPS plan(s) has undertaken are as follows:
In the event of a recognised UK pension transfer:
- At least 70% of a member’s UK tax‑relieved funds will be used to provide an income for life.
- The pension benefits payable to the member are not payable before the member reaches normal minimum pension age unless the ill‑health condition is met.
To provide information to HMRC on all payments or deemed payments made from the plan relating to a member when any one or more of the following statements applies:
- The member is tax resident in the UK when the payment is made – or treated as made;
- Although not a tax resident in the UK, the member has been a resident in the UK earlier in the tax year in which the payment is made (or treated as made) or in any of the five tax years immediately proceeding that tax year.
- Within 10 years of the member’s UK registered pension transfer to the Horizon QROPS
- To operate the scheme in a manner in which the Trustee ensures that QROPS status is maintained for the plan and the members.
The Horizon QROPS plans are designed to enable non‑UK resident individuals – or individuals who are about to leave the UK – who have accrued pension benefits in the UK, to transfer these out and create a tailored solution to suit their own circumstances.
Horizon QROPS structures can be established by Guernsey residents and non‑Guernsey residents around the world. Horizon QROPS may be offered via third party Trustees in jurisdictions outside of Guernsey (i.e. Gibraltar), with Gower Pensions Management undertaking the administration. The opportunities and benefits may vary depending on where the Trustee, member and the member’s subsequent beneficiaries are tax resident.
Gower Pensions Management Limited does not provide tax, legal or financial advice and recommend that specialist advice is sought prior to establishment.