What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?

Thinking about moving overseas and waiting for retirement there? Many UK expats decide to spend their senior years abroad and enjoy this period of life to the fullest. You might see yourself relaxing on a beach somewhere or strolling the streets of a new city.

However, you should decide whether you’ll be transferring your UK pension funds to a pension scheme in another country or not. One possible option is a qualifying recognised overseas pension scheme or QROPS. We’ve created a guide to help you find all the information you might need in one place, including the tax implications of this scheme.

We’ll also point out a cost-effective way to manage your money across borders. The Wise account from the money services provider Wise allows you to send money to 160+ countries at the mid-market exchange rate, with low, transparent fees*.

Find out more about the Wise account

What is a Qualifying Recognised Overseas Pension Scheme (QROPS)?¹

A qualifying recognised overseas pension scheme or QROPS is a type of pension scheme established outside the UK that’s similar to a UK pension scheme. The similarity is based on criteria set out in UK legislation and it needs to be confirmed as eligible by HM Revenue & Customs (HMRC).

Individuals with pensions in the UK can transfer their funds to that overseas pension scheme if they plan to leave the UK permanently. QROPS should be treated in the way that is usual for pension schemes in that country. However, it should also allow individuals who leave the UK to be in the same position as those who remain in the UK with their pension savings.

Pension schemes that claim they meet the HMRC requirements to qualify as a recognised overseas pension scheme (ROPS) are all included on a list. However, it’s still up to you to double-check this. The list is updated on the 1st and 15th day of each month.²

What are the tax implications of transferring to a QROPS?³

If you’ve determined that the pension scheme in your destination country meets the requirements to be a QROPS, you can start looking into tax implications.

Whether you’ll pay tax or not depends on where the QROPS you transfer to is based and your available overseas transfer allowance. It’s important to know that it will be your responsibility to find out the QROPS location.

You’ll pay 25% tax in the following cases:

• Transferring to a QROPS based in the European Economic Area (EEA) or Gibraltar and you live outside those areas
• Transferring to a QROPS based in the EEA or Gibraltar and move from these areas within five years of transferring
• Transferring to a QROPS based outside the UK, Gibraltar or the EEA and you don’t live in the country where your QROPS is based
• If you don’t provide all the information on Form APSS263 within 60 days of requesting the transfer (Form APSS263 is used to give your scheme administrator the information they need to transfer your funds to a QROPS⁴)
• If you exceed your overseas transfer allowance

On the other hand, you won’t pay any tax in the following cases:

• Transferring to a QROPS based outside the UK, Gibraltar or the EEA and if you live in the country where your QROPS is based
• Transferring to a QROPS based in the EEA or Gibraltar and you live in one of those areas

When it comes to accessing your QROPS funds, you should avoid doing it before the age of 55. This qualifies as an unauthorised withdrawal and can be taxed up to 40% of the withdrawn amount and an additional 15%.⁵

Besides this, you must have been a resident outside the UK for ten consecutive UK tax years before you can access your QROPS pension. However, if you withdraw from a QROPS within five tax years of switching from a UK pension, it may be subject to UK tax rules.⁵

Is a QROPS a good idea?⁶

Whether transferring to a QROPS is right for you depends on your individual circumstances. However, let’s list some general pros and cons.

One of the advantages of transferring to a QROPS is that you can often withdraw as much money as you need. Unlike UK-based pension schemes, you don’t need to receive the same amount each month and can instead choose when you need more. Not only this, some QROPS allow you to withdraw in more than one currency. This lets you avoid exchange rate costs and currency conversion fees as an expat.

Also, whether QROPS is a good idea depends on where it’s based. In some cases, you’ll be able to transfer your funds tax-free. However, if you move to certain countries, you’ll have to pay 25% in tax. On top of this, if you move to a country that doesn’t have a DTA with the UK, you’ll end up paying tax twice.

Finally, QROPS usually offer more options than UK pension schemes regarding how your money is invested. You can pick a flexible investment plan to suit your circumstances and objectives. However, there’s always a little bit of risk when it comes to these things compared to a guaranteed annuity.

How to set up a QROPS transfer

Here are the steps to initiating a QROPS transfer:

• Consult a financial advisor before starting
• Check the HMRC QROPS list and verify the status of the QROPS you’re interested in
• Contact your UK pension provider and check whether a QROPS transfer is possible
• Contact the QROPS provider
• Complete the required Form APSS263 within 60 days of requesting the transfer

Use Wise for receiving money from abroad

A qualifying recognised overseas pension scheme can be a good option for everyone who plans on moving from the UK permanently. However, there are multiple factors to consider, such as tax implications and scheme rules, so make sure you consult an expert.

And for managing your UK state pension overseas, you can rely on the Wise account. With Wise, you can send money to and from the UK for low, upfront, transparent fees*.

Also, if you get the Wise card for a one-time cost of £7, you can spend like a local in 150+ countries. Each time you use your card, your pounds are auto-converted at the mid-market exchange rate. You’ll just pay a small conversion fee, or no fee if you already have the currency in your Wise account*.

Discover the Wise card 💳

Please see the Terms of Use for your region or visit Wise fees & pricing for the most up-to-date information on pricing and fees.

Sources used:

Sources last checked on date: 13-Sep-2024