The number of UK pensions being transferred to Qualifying Recognised Overseas Pension Schemes (QROPS) are increasing, with a total value of £1.5 billion worth of transfers executed between April 2015 and April 2016
It’s now over a decade since QROPS were introduced, and in the intervening years they have surged in popularity, according to HMRC official statistics 2016.
QROPS were first launched on April 6, 2006 as part of the UK government’s widespread pension reforms, known as A-Day. These reforms heralded big changes for savers both inside and former residents, outside the UK.
The objective of QROPS was to give British people the opportunity to move their pension overseas. It was part of the move to allow people free movement within the EU, and that included the right to contribute to a pension scheme while they were outside Britain.
Nowadays, QROPS transfers are available not just in Europe, but across the globe. In the intervening ten years there have been a lot of legislative changes, some of which have boosted QROPS numbers, while others have, for a time, reduced the options available.
The legislation introduced in April 2006 made it possible for a UK pension to be transferred to an overseas pension, under certain circumstances. The overseas pension needed to meet qualifying criteria. These qualifying schemes, known as QROPS, need to pay benefits broadly similar to UK pension rules.
How QROPS Have Grown
HMRC official statistics 2016 show that after a slow start, QROPS have become extremely popular, as the table below shows:
Transfers to Qualifying Recognised Overseas Pension Schemes:
|
Tax year (6 April to 5th April) |
Number of transfers1 |
Total value of transfers2 |
|
2006 to 2007 |
2,500 |
£120 m |
|
2007 to 2008 |
5,700 |
£350 m |
|
2008 to 2009 |
6,100 |
£360 m |
|
2009 to 2010 |
6,700 |
£460 m |
|
2010 to 2011 |
12,800 |
£1,360 m |
|
2011 to 2012 |
16,400 |
£1,040 m |
|
2012 to 20133 |
13,400 |
£1,000 m |
|
2013 to 2014 |
11,300 |
£860 m |
|
2014 to 2015 |
20,100 |
£1,760 m |
|
2015 to 20163 |
13,700 |
£1,500 m |
Notes
(1) The number of transfers are rounded to the nearest 100
(2) The total value of transfers are rounded up to the nearest £10 million
(3) There were changes to the requirements schemes had to meet to qualify as a QROPS in April 2012, and April 2015
Demand for QROPS
The table illustrates that there was particular demand for QROPS in 2012, but in the 2012 to 2013 tax year the numbers were reduced. This is because in that year the government changed the criteria under which schemes could become QROPS qualifying. Hundreds of schemes were no longer able to receive new transfers from Britain as a result. There was also a change to the amount of cash that could be taken as a tax-free lump sum for some jurisdictions.
From the beginning of the new tax year in April 2012, some QROPS jurisdictions had to reduce the amount of lump sum available from the QROPS fund from 100% to just 30 per cent. However, the changes were not applied retrospectively, so there was a period between the March 2012 budget and the end of the tax year in April when transfers under the old rules were still available. This prompted a spike in demand for QROPS at that time.
In 2015, pension legislation changed again. As of 6th April 2015, if you were aged 55 or over, you were allowed to have 100 per cent access to your UK personal pension. Although would-be retirees could take all their pension, in practice this was not advisable because only the first 25 per cent of the fund could be taken tax-free. The remainder was taxed at your marginal rate.
QROPS Changes
In addition, the rules on QROPS changed. The new rules required that a QROPS did not offer access to UK funds before the age of 55, unless the member had to retire because of ill-health. Under the new rules, if a UK pension was going to be transferred out of the UK into a scheme abroad, the receiving scheme needed to offer similar benefits and restrictions.
Under current legislation, if a fund is transferred under the QROPS rules, then transfers will be free of UK tax up to the lifetime allowance. This is intended to allow people who wish to emigrate to take their overseas
The other change which took place in 2015 was the removal of the right to transfer a public sector scheme fund. This led to a surge in the final year of availability. Until then, members of unfunded public sector pension schemes could transfer into QROPS schemes.
According to the latest figures, almost 14,000 funds were transferred out of British funds to a QROPS last tax year.
Taking Advice
Although there are potentially significant financial and tax benefits to be had from a QROPS transfer, it is important to obtain professional advice.
You will need to consider how your personal tax situation and that of the country to which you are moving will affect your finances. It’s also important to investigate the safety and security of the regulatory regime into which you are planning to make the transfer.
Your pension fund will probably be one of your biggest assets and you need to be sure that it is being transferred to a jurisdiction where it will be safe.
