If you are planning to live and work abroad, you need to think about how you are going to fund your retirement, and this means understanding QROPS schemes and the QROPS rules.
QROPS stands for Qualifying Recognised Overseas Pension Scheme. It is a scheme into which you can transfer a UK pension if you are living or working abroad and you plan to draw your pension outside the UK.
For those retaining their pension benefits, in the UK, for the time being, a question that is often asked is, “Can I contribute to a UK pension once I have emigrated?” People often worry about what to do with their pension when they leave the UK to work abroad or retire, because they may no longer be classed as UK resident. They don’t know if they will be allowed to keep paying into a private pension if that pension is based in the UK.
The simple answer is that if you leave the UK and live abroad, you can continue to pay money into your pension fund, although you might not benefit from tax relief. Alternatively, you could make a transfer of your existing pension fund into a QROPS scheme where the tax treatment of your money, both whilst saving and when looking to draw benefits at retirement, might be more beneficial.
In order to be able to continue to make contributions, you must have already been paying into the scheme before you left the UK. You are unlikely to be able to change or increase the value of the contribution. Additionally, you won’t be able to start paying into a different UK scheme if it wasn’t in place already, before you left the country.
When you leave the UK, you may find that your continuing contributions don’t qualify for tax relief, or that your tax relief is limited. This is one of the reasons why expats decide to make a QROPS transfer, in order to enjoy more beneficial tax treatment.
You can claim the UK State Pension abroad if you’ve paid enough UK National Insurance contributions to qualify. You can contact the government to find out how much State Pension you may get by asking for a State Pension statement.
Many expats use a QROPS transfer if they are not planning to return to the UK. A QROPS is an alternative pension scheme based in a country outside the UK which HMRC has approved as eligible to receive transfers from UK pension funds. There are strict criteria for QROPS schemes and qualifying providers are available at the HMRC website.
The options available are:
1. Leaving your pension in a UK pension plan
- You can continue to contribute towards your fund, or leave it to grow without funding it further
- Your contributions may not qualify for tax relief under tax regulations if you don’t earn any income in the UK
- Tax relief is likely to be limited to £3,600 per annum or 100% of your income if you have relevant UK income
- You can access your private pension at age 55
- You will receive a tax free lump sum worth 25% of the value of the whole fund
- If you don’t take your pension at 55 you can leave it invested until you decide to draw down on it
2. Moving your pension abroad using a QROPS transfer
- The scheme must be approved by HMRC
- Certain types of public and government schemes won’t allow members to make a transfer to QROPS.
- If you have an occupational or private UK pension, you could move the pension fund offshore. This could provide greater flexibility, the opportunity for growth and potential tax advantages.
By making the transfer into a QROPS scheme the benefits could include:
- Increased flexibility
- Greater investment choice
- Taxation advantages
- More freedom to use your fund in the way that you wish
- Protection from currency fluctuation
- The ability to pass the remaining assets onto your heirs when you die
- All your pension assets in one place. This is particularly true if you decide to consolidate all of your pension schemes into a QROPS.
When you move abroad you will need to notify HMRC and your pension provider. The key when considering your pension provision is to take specialist advice from an expert who can give guidance on the important decisions around QROPS options and the QROPS rules.
An adviser can help you choose where you want to draw your pension. One important consideration is whether the country in which you plan to live or are living has consumer protection legislation which will protect you.
By taking advice from a specialist, such as those at bdhSterling, you can select the right scheme and plan how you will take your income, in order to reduce your tax liability and make the most of the flexibility of a QROPS.
