A Qualifying Recognised Overseas Pension Scheme (QROPS) is a scheme which notifies Her Majesty’s Revenue and Customs (HMRC) that it fulfils the requirements for being a recognised overseas pension scheme.

A QROPS allows an individual with a UK registered pension who is retiring outside the UK, or is intending to permanently leave the UK, to transfer their pension overseas without giving rise to an unauthorised payments charge liability or a scheme sanction charge on the scheme.

The Aurora QROP Schemes are open to both local resident and non resident members and offer tax efficient pensions. QROPS status requires some permanent undertakings to be given to HMRC along with the reporting of deemed payments and certain other events.

Anyone who has left the UK, or is planning on leaving the UK and does not intend to return can apply for a QROPS transfer.

Typical QROPS clients would be; UK expatriate, someone planning on becoming UK expatriate, or a temporary UK resident with definite plans to return to their home nation.

In most instances the services of a suitably qualified independent Financial Adviser will be required before a transfer can occur. Obtaining specialist advice should ensure that an individual is aware of the potential implications associated with transferring their UK pension fund into a QROPS.

The benefits of a QROPS will vary depending on the jurisdiction and the individual provider selected.

Before any potential QROPS transfer is progressed, the individual jurisdiction and provider should be properly researched and vetted to determine the suitability for an individual’s circumstances and requirements.

A specialist Financial Adviser should undertake the relevant research on both jurisdiction and provider to ensure the proposition suits the individual needs and circumstances.

The main perceived benefits of transferring to a QROPS will take effect once the individual Member has been outside of the UK for more than five complete and consecutive UK tax years.
After this five year period, the UK Member payment charges no longer apply and as such, any Member of a QROPS that has been resident outside of the UK for more than five complete and consecutive UK tax years will be exempt under Schedule 34 of the UK Finance Act from any Member payment charges.

Within Schedule 34 of the UK Finance Act it states the Member payment charges apply only if:
– They (the Member) are tax resident in the UK at the time the payment is made (or is treated as made), or
– Although not tax resident in the UK, they have been resident in the UK earlier in the tax year in which the payment is made (or is treated as made), or in any of the five tax years immediately preceding that tax year.

The point at which an individual reaches retirement age (the age at which they can elect to drawdown income payments from their pension scheme) entitles the Member to take a one off lump sum payment from their scheme, a Pension Commencement Lump Sum (PCLS).
This PCLS withdrawal will in most cases provide the Member with access to a percentage of their pension fund in a tax efficient manner.
Schemes within the UK are able to pay up to a maximum of 25% of the fund value of a pension scheme to an individual as a PCLS.

Some jurisdictions are able to pay up to a maximum of 30% of the fund value of a pension scheme to an individual as a PCLS.

Therefore a Member of a QROPS in a jurisdiction that permits up to a maximum of 30% PCLS that has been resident outside of the UK for more than five complete and consecutive UK tax years, would be able to take a greater percentage of their pension scheme fund value as a lump sum payment upon reaching the relevant retirement age and electing to commence benefits.

As the Member exemption provisions take effect once a Member has been outside of the UK for more than five complete and consecutive UK tax years the QROPS is effectively governed by the laws and legislation in the jurisdiction in which it is based.

In Guernsey for instance, income is able to be paid at a ‘justifiable level’ as opposed to being restricted to between 0-100% of the UK published GAD rates.

For example, if a Member has significant assets or wealth outside of their QROPS the Trustees could potentially approve income payments being made at a higher level than the UK published GAD rates would allow, if they considered this to be justifiable.

However, Trustees are required at all times, under the QROPS rules, to ensure that 70% of an individual’s total transfer value is used to pay the Member an income for life.

Therefore payments are unlikely to be granted in a highly accelerated manner, but slight adjustments may be considered at Trustees’ discretion in certain circumstances, examples of which could be serious ill health or significant outside wealth.

One of the main benefits associated with a QROPS is that the scheme will not be liable to the UK Member death benefits charge of 55%, if the Member has been resident outside of the UK for more than five complete and consecutive UK tax years, when he/she passes away.

As the Member exemption provisions take effect once a Member has been outside of the UK for more than five complete and consecutive UK tax years, the QROPS is effectively governed by the laws and legislation in the jurisdiction in which it is based.

There can potentially be much less (if any) tax deducted from the residual fund of a Member upon their death.

Like a UK registered pension scheme a QROPS is not subject to UK IHT upon a Member’s death, although there may be some form of local inheritance tax to pay specific to where the Member is resident at the time of their death.

For individuals attempting to break their UK residency or UK domicile, having UK registered pension schemes could be perceived as being a connecting factor to the UK. Transferring to a QROPS would highlight an individual’s intention and commitment to breaking their connections with the UK and could potentially assist with breaking UK residency or domicile.

Specialist tax advice specific to an individual’s country of residence will determine the potential IHT benefits of transferring to a QROPS.

Transferring from a UK registered pension scheme into a QROPS can provide an individual with a greater degree of flexibility surrounding their ability to take income payments and invest within a wider choice of currencies.

A number of UK registered pension schemes will only allow for a scheme Member to take their pension income payments in GBP sterling. Within a QROPS a Member would have the ability to nominate the currency in which they wish to receive their pension income payments; as a result of this an individual can potentially reduce the risk of currency fluctuations.

Transferring existing UK pension funds into a QROPS will allow an individual to consolidate all of their current pension funds into one manageable scheme.

In many cases individuals will have more than one pension fund and the opportunity to consolidate these into one provides the Member with a more efficient manner to manage their retirement savings.

A definitive timeframe for a QROPS transfer is impossible to predict, as every transfer is different. The timescale for a QROPS transfer is highly dependent on receiving the transfer from the existing UK pension scheme provider and as all of their administrative processes are different, the timescale can vary from case to case.

From our extensive knowledge of the market and previous case experience, an approximate timeframe for a QROPS transfer to be completed would be between 6-8 weeks.

*Please be aware that in-specie transfers can often take much longer than this and the QROPS Trustees may charge a transactional fee for this type of asset transfer.

Yes, so long as the Member has reached retirement age and has not previously taken their PCLS from their previous UK registered pension scheme.

Upon reaching retirement age, an individual is entitled to take a percentage of their pension value as a lump sum. The amount that they are able to take will be dependent on the jurisdiction in which the QROPS is based and whether they have been non-resident of the UK for more than five complete and consecutive UK tax years.

If they have been a non UK resident for less than five complete UK tax years, a maximum of 25% of the transfer value can be given as a PCLS.

If the individual has been a non UK resident for more than five complete and consecutive UK tax years, they will be entitled to take the maximum amount as allowed by the jurisdiction their QROPS is based.

Income can be taken from a QROPS once the Member reaches retirement age, in most jurisdictions this is from the age of 55.

This is not a requirement however and if an individual does not want to commence drawdown of their benefits at this time they do not have to do so. The jurisdiction in which the QROPS is based will have its own legislation as to from what age an individual must start to take an income.

However, both the minimum and maximum retirement age can vary from jurisdiction to jurisdiction, and is dependent upon the jurisdiction from which the scheme is administered.

No. A QROPS can accept multiple transfers from existing UK pension schemes.

However it should be considered that individual QROPS providers will allow for a set number of included transfers into the overall fee (usually between 1-4), and if more transfers are needed, these will be charged on top of the initial scheme establishment fee.

Upon the death of a Member, there are a number of options available for the treatment of the residual fund. Upon establishment of the scheme the Member should seek to provide a written expression of wishes letter to the Trustees that would be considered by the Trustees upon Member death and may guide their decision making for payments of the residual fund. Payments remain at all times subject to the discretion of the Trustees.

Payment can potentially be made as a lump sum payment to an nominated beneficiary or dependant, as requested by the Member, or alternatively if no such instruction was provided, the residual fund will form a part of the Member’s overall estate to be divided as per their instruction within the individual’s Will.

There are further options to be considered for those receiving the residual funds, such as a spousal bypass / freezer trust for efficient succession and generation planning. Specialist financial and/or tax advice should be sought by the nominated beneficiaries / dependants of the Member at this time.

Any Member that returns to the UK, or is planning to return to the UK must instruct both their Financial Adviser and Trustee of this, as it can have a significant impact on the potential benefits and implications they considered before transferring to a QROPS.

There is no necessary requirement for the Member to transfer out of their QROPS if returning to the UK, but they should consider whether the associated fees for this type of scheme make it a cost effective option for an individual that is resident within the UK.

Dependent on the jurisdiction the QROPS is based and the individual scheme provider, the manner in which investments are managed may be affected as a result of returning to the UK. Therefore the Trustees must be instructed at the earliest opportunity.

UK resident Members of a QROPS will be restricted to income payments and lump sum payments in line with that of a UK registered pension scheme. The Member exemption provisions do not apply to anyone resident in the UK, or who has been resident in the UK in the five preceding UK tax years and as such a number of the advantages of a QROPS will no longer apply for the individual. Most notably, there is no longer an exemption from the Member death benefits charge of 55%.

Specialist financial and/or tax advice should be taken by any individual with a QROPS that returns or is planning on returning to the UK to determine whether the scheme is still in their best interests.

No.
Only overseas pension scheme providers that are recognised for tax purposes in their local jurisdiction and have submitted their scheme particulars to HMRC and confirmed they meet all conditions to be a QROPS, will qualify as and be listed by HMRC as a QROPS.

An updated list of schemes that have QROPS status is published by HMRC and can be found on the HMRC website.

If you wish to view the HMRC QROPS list, please visit: http://www.hmrc.gov.uk/pensionschemes/qrops.pdf

Yes.
There are a number of different jurisdictions in which a QROPS can be established and each jurisdiction will have its own legislation, regulation and laws that may impact on its suitability for an individual.

Yes.
It is possible to transfer Protected Rights benefits into a QROPS.
Protected Rights are pension funds built up with contributions paid by the UK Government when an employee ‘contracts-out’ of the State 2nd Pension (S2P) or its predecessor SERPS.
An individual should consider that upon transfer to a QROPS the “protected” element of their pension fund is lost and the value of protected rights benefits is consolidated with the overall pension fund.

Yes.
However in most instances where the scheme to be transferred is a Defined Benefit / Final Salary scheme this will not be possible as the existing Trustees will not agree to transfer in these circumstances.

Defined Contribution schemes and other personal pension arrangements should allow for transferring out of a scheme, even when the scheme is in drawdown.

Therefore in the first instance the existing Trustees / Administrators of the scheme should be contacted to determine whether a transfer out of the scheme whilst in drawdown is possible.
In some cases the existing Trustees would request the QROPS Trustee to certain undertakings considering the way benefits may be paid from the Scheme.

Yes.
This type of scheme can be transferred to a QROPS. However, if the scheme is in drawdown, as noted above, it is unlikely the existing Trustees will agree to transfer the scheme out.
Often the transferring scheme will provide a Cash Equivalent Transfer Value (CETV) that will be guaranteed for a certain period of time. A transfer will need to have been completed before the guarantee date deadline in order for the transfer to occur. If this guarantee date is missed it is likely the existing scheme will charge for a revaluation, or the Member would need to wait until they were entitled to another free valuation of their scheme, in most cases this is every 12 months.

As the policyholder will be relinquishing all guarantees and/or protected rights held within their defined benefit / final salary scheme upon transfer to a QROPS, the need for careful consideration and a full disclosure of the rights the individual will be giving up is imperative.
Therefore most QROPS Trustees will require that any application to transfer is accompanied by a specialist Transfer Value Analysis Systems (TVAS) report, produced by a suitably qualified Professional Adviser and signed by the Member.

This report should outline all of the guaranteed benefits that the Member will be relinquishing upon transferring out of their existing defined benefit / final salary scheme. It should give a ‘critical yield’ figure that gives an indication as to the required level of investment return needed to gain a worthwhile return on the transfer out from their current defined benefit / final salary scheme.

The benefits associated with transferring into a QROPS are unlikely to have been considered, such as succession planning and inheritance tax efficiency.
All of the above factors should be considered by both the individual and their appointed Financial Adviser before any transfer proceeds.

No.
Taxable property is not permitted to be held within a QROPS.

The scheme rules for each individual QROPS will dictate the relevant acceptable assets and investments that can be held within the scheme, but in general terms a QROPS that is deemed to own taxable property can give rise to initial and ongoing charges for both the policyholder (Member) and the QROPS provider.

There could be an initial tax charge of up to 40% on the policyholder (Member) of the QROPS and if the value of the property equates to greater than 25% of the value of their QROPS, then a further charge of 15% could be levied.

An initial tax charge of 15% will be levied on the QROPS provider.
Ongoing tax charges will also apply.

Yes.
It is possible to make an ‘in-specie’ asset transfer from the custodian of the UK pension scheme into the custodian appointed within the QROPS. This would be dependent on the new custodian being able to accept an ‘in-specie’ transfer of assets and their ability to hold the assets held within the existing arrangement.

*Please be aware that in-specie transfers can often take much longer than this and the QROPS Trustees may charge a transactional fee for this type of asset transfer.

Yes.
One of the conditions to be listed as a QROPS by HMRC is that the QROPS Trustees have reporting requirements to HMRC in respect of Member payments.

As set out in the Finance Act 2004 and later amended in April 2012, QROPS Trustees have to notify HMRC of any Member payments made. This obligation for reporting is for a ten year period from the date the transfer is deemed to have occurred.