How Do QROPS Work?

QROPS, even if you haven’t heard of them already, have actually been around for over a decade now. There could be exceptionally high tax and financial benefits to transferring your money over to a QROPS to withdraw your money from, if you are planning to retire abroad or already working overseas.

Ex-pats are most suited to these kinds of pension scheme transfers. One of the distinct advantages is that moving your pension funds to a QROPS increases the level of flexibility you have over your income payments. It could be possible for you to withdraw larger lump sums than with a UK pension, and you are able to receive the funds from your pension in the local currency of where you are located.

How Do QROPS Actually Work?

In order to qualify for withdrawing money from your QROPS, you have to be 55, unless you special circumstances related to ill health. The majority of QROPS though, pay a lump sum, that’s completely tax-free, when you retire. There are however, some jurisdictions on QROPS, in that a minimum of 70% must be kept to pay income for life. Compared to the UK pensions though that only allows for 25% lump sums, as previously noted, you are able to take a lump sum of anything from 25% to 30% completely tax-free.

In a similar way to a UK pension, you are not obligated to buy any annuity with your QROPS and you can withdraw from the funds whenever you need income, although you should always weigh up the tax ramifications of doing this regularly.

Any money left in a QROPS when you die, will be passed onto your heirs, without it being subjected to any taxes. However, in the UK, depending on your age at death, will determine how the proceeds are passed on. That is, whether those inheriting the money will have to pay tax on the funds or not.

What Is Involved When You Apply To Make A Transfer?

Before you can transfer any money from your UK pension to a QROPS, your UK pension provider will need to check that the QROPS scheme you are using is a genuine QROPS and listed as an approved scheme. There will also be an additional check if you are under the age of 75 to see whether your pension savings are over the lifetime allowance for pension funds. For the tax year 16/17, this was £1 million.

If you are looking to transfer over the £1 million allowance, and you have no lifetime allowance protection, any amount over 31 million will incur tax charges of 25%. If your transfer has been approved and it increases over the £1 million mark, you will no longer be subjected to the UK lifetime allowance regulations or any of the charges for UK inheritance tax.

Always Seek Out Expert Advice

While it may be that you think you would benefit from transferring from your UK scheme to a QROPS pension, you should always seek out expert advice from highly reputable and experienced QROPS specialists before you sign up for anything.