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There seems to be a lot of talk recently about QROPS and their uses for buying property or gaining access to pension funds early. So to set the scene, let me introduce QROPS – Qualifying Recognised Overseas Pension Schemes – and try to dispel some of the myths surrounding this very exciting form of investment. That said, if you do not have a frozen pension scheme in the UK then I suggest you flip the page now. Conversely, if you are not sure if you have a pension in the UK, remembering that you do not have to British to qualify but on the basis that you may have worked for a company in the UK, you could have pension rights that you may have forgotten about. If you are going to flip the page, suggest you check with your employer(s), past and present, to see if you have any pension languishing in the UK.

Her Majesty's Revenue and Customs (HMRC) permit UK pension rights to be transferred to a QROPS. The QROPS must behave in effect as if it were a UK scheme for those QROPS members who have been resident in the UK at any time in the previous five tax years. The key attraction of transferring UK pension rights to a QROPS lies in the fact that for those who are currently in the position of having been non UK resident for at least five tax years (or when they satisfy that condition) this requirement falls away. 

After that time the pension fund becomes subject to the laws of the relevant overseas jurisdiction – and for example the UK requirement  to purchase an annuity by age 75 (or be faced with the prospect of a possible  82% tax charge) no longer applies. Possibly this is the most compelling and important reason to investigate QROPS since you have no requirement to give up your pension fund to this type of insurance vehicle. This means you can pass on the benefits of your pension to ongoing beneficiaries and not incur Inheritance Taxes either – boom; there is the second most advantageous reason.

Historically, QROPS became popular when people emigrated to other parts of the world and wanted to transfer their pension rights to their new home. Canada, NZ and Australia where common destinations for QROPS where a similar scheme was available to that they enjoyed back home. However, new offshore territories have risen to the burgeoning market and opportunity that QROPS provides. 

As a result, some folk have used the structure of a QROPS or more importantly the non-reporting clause after 5 years to access pension funds for other than retirement income. Most professional financial advisers would strongly suggest that your pension provision should remain for exactly that and not, even if it is possible, to access early for less financially prudent purposes. This is particularly achievable through jurisdictions whereby the Trustee of the pension scheme is not as diligent or robust in enforcing the true definition of a pension; to create income when one has finished work. 

A wide range of investments are possible within a QROPS  - and the possibilities become more or less unlimited once the QROPS member has been non resident for five complete tax years or more. When Gordon Brown did his u-turn on the ability to buy residential property using SIPPS (Self Invested Personal Pensions), QROPS comes to the rescue subject to specific guidelines being met. There is no limit to the size of funds that may be accumulated within a QROPS which was another restriction for UK pensions after A Day.

Effecting a transfer into a QROPS is relatively straight forward. Once a transfer value is established and your suitability approved, most UK registered pension schemes will be paid to the QROPS in cash.  In other instances it may be possible to transfer existing scheme assets, but the additional costs associated with this would need to be taken account of. On receipt, cash funds will be placed on deposit by the scheme administrators in an account designated for the member’s fund with a leading institution with a competitive rate of interest being applied. A wide range of investments are possible within a QROPS  - and the possibilities become more or less unlimited once the QROPS member has been non resident for five complete tax years or more.

When it comes to taking benefits, one can access the fund from as early as 50 years of age or sooner in some instances. On the assumption that the QROPS member on taking benefit is not UK resident nor has been resident during the five tax years preceding the tax year in which benefit is taken. Benefits may be taken from a QROPS in pension form with no particular limits on the amount of pension that may be taken. There is no obligation to buy an annuity from a life office and the amount of “income” required may be drawn from the fund.  This does not preclude the possibility of withdrawing most or the entire fund in a single transaction. Another attraction that is not achievable through conventional UK pensions or SIPPS.    

Following the death of a QROPS member any remaining fund may be subject to the discretionary disposal of the scheme trustees in accordance with the provisions of the scheme rules.  This will generally result in a disposal in lump sum form to beneficiaries nominated by the scheme member. It may be possible for the residual fund following death to be paid by the QROPS to the funds of other members; other family members for example.

So the transfer of pension rights from any UK registered pension scheme is not a matter to be taken lightly. Where the transfer is from a UK occupational pension scheme any professional adviser offering guidance on such a transfer must be suitably qualified and have the relevant permission granted by the Financial Services Authority. Moreover, is your QROPS domiciled in a jurisdiction commensurate with the security and regulation you would normally demand of your offshore investments? Unless you are using an Isle of Man or Channel Islands solution then we stress you should ascertain whether the scheme is Qualified, has HMRC approval, jurisdiction approval and you are fully conversant with the ramifications should you decide to become resident again in future.