Pension savers looking for the right offshore home for their retirement savings are bombarded with options, so here’s a step-by-step guide to setting up a QROPS pension.

Take regulated, independent advice

Contact a regulated independent financial adviser – prospective QROPS investors must make contact with a provider via an IFA. QROPS schemes only take introduced business to ensure customers have had independent advice on the risks and benefits of a QROPS.

Points to watch –
  • Your adviser is regulated and knows the QROPS sector
  • Your QROPS provider is a bona fide registered scheme
  • Set-up charges
  • Ongoing charges for administering the fund or switching investments
Get a pension transfer value

Your current pension provider will give this figure – it’s generally the fund value less charges. Do not work on the current value, as the transfer value could be significantly less.

Many QROPS providers do not accept transfers of less than £100,000 - £150,000, some have their thresholds set a lot higher.

Smaller fund transfers might appeal to the pension investor, but the switch might not be cost-effective.

Select a QROPS provider

Different QROPS advisers have varying minimum incoming fund transfer values, so until your current pension administrator confirms the figure, you cannot start a transfer with confidence the fund meets the provider’s threshold.

Look at investment options. You might want flexible investments so you can self invest or just a standard arrangement to use an in-house fund manager.

Consider further transfer fees, should you want to move your money on to a different QROPS in the future.

QROPS set up

The scheme administrator has to carry out some background checks – these include standard anti-money laundering inquiries to confirm your identity and the source of the transfer fund.

The QROPS team has to have a letter of authority from the transferring pension fund agreeing to the transaction. This involves the current fund administrator confirming the proposed transfer is to a registered QROPS scheme.

The administrators also agree the final fund transfer value.

Post-transfer activity

Liaise with QROPS scheme manager over finalising investment decisions. Again, these options may vary between QROPS providers

 
 
_The UK tax man has closed the door on consultation over new QROPS rules aimed at
stamping out abuse in some jurisdictions.

Panic has gripped providers and advisers in some QROPs jurisdictions since the
proposed changes were announced before Christmas.

The reality is some providers may have to shut up shop because their products will
not stand the test of the new rules - but anyone who has already transferred a UK pension pot offshore does not have to worry about their retirement
savings.

In the interests of fairness, HM Revenue and Customs is not adopting retrospective
legislation, so any funds already in a QROPs when the new rules start on April 6
are safe and no penalties or other charges will be imposed by the tax
man.
 
The industry is speculating wildly over the likely pension jurisdiction winners and
losers, but the truth is no one knows at the moment, as behind-the-scenes work
arounds are hotly in smoke-filled rooms.

Guernsey, the QROPS destination of choice of many third party pension savers has already come up with a plan to change the island’s pension rules to match the QROPs
proposals. The Channel Island’s parliament is ready to rubber stamp them in March.

The new pension regime on Guernsey beats the biggest stumbling block for most QROPS
jurisdictions - how to equalise tax on payments for residents and non-residents.
 
At a swipe, Guernsey has resolved the problem by scrapping tax on pension payments
for everyone. Other jurisdictions may not be so flexible in changing their tax
laws in time.

Malta and the Isle of Man are likely to be QROPS winners as well -the George Cross
island is in the European Union and has tough pension regulation to give confidence to HMRC that QROPS providers are playing by the rules.

The IoM is not in the EU, but has a respected financial standing and a long-standing
positive relationship with the UK tax authorities.

New Zealand is another matter. NZ QROPS are seen by the industry as short-term
solutions for early encashment - which puts them fairly in the sights of HMRC’s
tax avoidance task force.

Whatever happens from April 6, QROPS will continue to offer a solid offshore investment advantage to UK ex pats. 

The choice of QROPS offshore centre changing is a lesser blow for investors than providers and advisers who face losing their cash flow overnight while playing by stricter rules.



 
 
The rules for transferring a UK pension fund to a QROPS offshore pension are specially written to make sure no tax or other penalties apply.

So, shifting cash from one or more UK pension funds to consolidate the money in a single QROPS pension triggers no tax charges – providing the pensions schemes swapping the money are both registered with the taxman.

The transfer between the schemes is not a contribution, so tax relief is not added to the QROPS or deducted from the funds that are switched.

This is important for many pension savers because it means any contributions in to a UK pension attracted tax relief that increased their retirement savings remains in the fund when transferred out of the UK in to a QROPS pension.

This rule recognises that the contributions already made met the rules for receiving tax relief and the transfer is merely relocating where the funds are held and not a reconsideration of their eligibility for tax relief.

Pension fund transfer values

The value of the transfer fund is part of the annual allowance calculation for the year in which the transfer takes place.

Transfer values are a key point to watch in any pension transfer – whether between UK schemes or offshore.

Anyone contemplating a QROPS transfer should request a transfer value calculation from a UK pension provider before starting the transfer process. This calculation fixes the amount available to move offshore and lays out any charges involved.

In most cases the transfer value will be less that the pension fund value.

QROPS transfers that need careful consideration

In most cases, the transfer fund and the value of any other assets switched in the pension input period are calculated at market value at the date of transfer.

This includes defined benefit schemes, even though the question rarely arises because defined benefit schemes pay index-linked benefits that are lost on a transfer of funds.

A transfer to a QROPS is not generally a benefit crystallisation event for a saver’s lifetime allowance.

Don’t include the UK state pension in any transfer calculations - technically, it’s not a registered pension scheme and only fund switches between registered schemes are allowed.

 

QROPS

06/05/2009

 
QROPS is a pension scheme which has been created outside of the UK and which is recognised by Her Majesty's Revenue and Customs as meeting certain rules, standards and conditions. A pension scheme having the QROPS approval allows individuals with a UK pension who now resides outside of the UK, or is in the process or planning to leave the UK in the near future, to transfer their UK registered pension offshore to a QROPS Pension Scheme.

To read more about QROPS and the latest update & developments follow this link to another QROPS pension article.

A QROPS pension scheme is predominantly subject to legislation in the jurisdiction where it is based. It is important to note however, that the QROPS administrators have to adhere to HMRC regulations in respect of any member who has been non-UK resident for less than five tax years. After a member of a QROPS has been non-UK resident for over five tax years, this is where the beauty of a QROPS really comes to fruition.

 If an individual had their pension invested in a QROPS based in the Isle of Man, then Isle of Man legislation allows up to 30% of the pension fund to be taken as a lump sum. A QROPS based in Hong Kong only allows lump sum payments to be made at the discretion of the trustees and therefore such payments cannot be guaranteed.

If an individual is invested in a SIPP, then like a QROPS, it is not necessary to have to buy an annuity at the age of 75. After retirement however, and leading up to age 75, a person can go into unsecured pension whereby they can draw an income from the pension fund. However if the member dies during this time and leaves their pension to a chosen beneficiary, then that person can inherit the pension fund as a lump sum but the fund will suffer a 35% income tax charge for the privilege! This compares very unfavourably to a QROPS where a member in the same situation who has been non UK resident for over 5 years, could leave money free of tax to his or her chosen beneficiaries where say the QROPS is based in Hong Kong or Guernsey. If the QROPS was based in the Isle of Man, there would be a 7.5% tax charge on a lump sum payment or a spouse's/dependant's pension could be paid. Still preferable to a 35% income tax charge!

The situation is even more favourable for a member of a QROPS who dies after the age of 75 whilst taking an income and they have been non UK resident for over 5 years. In this situation there would be no tax charge if the QROPS was based in Hong Kong or Guernsey. If the QROPS was based in the Isle of Man, then the fund could be returned less a 7.5% tax charge or a spouse's/dependant's pension could be paid.

If the member’s money was in a UK SIPP and the member had opted to take an ASP , (Alternatively Secured Pension) after 75 years of age, then any of the funds in the ASP still remaining on the death of the member, can be pass onto dependants tax-free. However, transfers to non-dependants will suffer a taxable charge of 70%, in addition of the Inheritance Tax of 40% on amounts over £325,000 starting from the date 6 April 2009.
It is therefore clear that a QROPS can offer many additional benefits over a SIPP. However, no matter how appealing a QROPS may sound, anyone considering transferring their pension abroad should always take advice from a suitably qualified company.