QROPS explained
Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced following ‘A-Day’ in the UK. A-day was 6 April 2006, when the UK pension tax system was simplified and replaced with a single system. With most of the earlier QROPS appearing in 2007.
QROPS were designed to make it easier for those living or planning to live overseas to move their UK pension pots into an overseas scheme. This was far easier than the previous legislation, enabling overseas transfers of UK registered pension rights. The main criteria for a QROPS transfer was simply that the pension plan overseas appeared on the HMRC recognised overseas pension schemes notification list.
QROPS offered similar benefits to UK personal pension plans. Although, tax-free cash up to 30% was allowed if the pension plan holder had been non-UK resident for five consecutive tax years ahead of retiring or beginning to draw from the QROPS. This compares to the UK limits of 25% for most UK pensions plans.
The earlier plans were linked to maximum income benefits under the previous UK “capped income drawdown” legislation, the maximum income based on Government Actuary Department rates (GAD) which were broadly linked to annuity interest rates.
Since then, and following the introduction on 6 April 2015 in the UK of flexi-access drawdown (FAD), some locations offering QROPS products adopted this instead.
It’s been rare that QROPS providers have changed between capped income drawdown and flexi access drawdown, which is what changed in the UK (FAD did replacing capped drawdown for new plans following April 2015).
Recent changes and next steps for you
As part of the Autumn Budget 2024, the UK Government announced that they would remove the exclusion from the Overseas Transfer Charge (OTC) of transfers to QROPS established in the EEA and Gibraltar, which will no longer apply to transfers to QROPS established in the European Economic Area (EEA) and Gibraltar made on or after 30 October 2024.
Prior to the 30 October Autumn Budget changes, if you had requested to transfer to a QROPS based in the EU, Norway, Iceland, Liechtenstein or Gibraltar and the transfer was completed before 30 April 2025, there would have been no OTC applied (as long as the amount did not exceed the overseas transfer allowance of £1,073,100).
The Government also announced that from 6 April 2025, the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA will be brought in line with OPS and ROPS established in the rest of the world, so that:
- OPS established in the EEA will be required to be regulated by a regulator of pension schemes in that country
- ROPS established in the EEA must be established in a country or territory with which the UK has a double taxation agreement providing for the exchange of information, or a Tax Information Exchange Agreement
What should I do?
It may be the case that moving to a QROPS now is no longer possible or fraught with too many complications and perhaps less benefit than in the early years when this product became available.
What do I do with my QROPS?
If you have already moved to a QROPS we would suggest you review these arrangements to understand whether they are suitable for your circumstances now or your known future.
This can mean making sure the QROPS location is suitable in terms of how benefits can be taken, and whether there is any tax advantage which could be related to whether a Double Taxation Agreement (DTA) exists between where your pension is based and where you will be living in retirement.
In addition, making sure the investment strategy inside your QROPS is appropriate and that it is being held in a cost-effective investment account is also highly important, so reviewing what you have is essential.
Additional changes to QROPS and tax charges
From 9 March 2017 certain transfers to and from a QROPs became liable to a 25% tax charge called the overseas transfer charge (OTC) and whether you were liable to pay tax depended on where the QROPS was based and your available overseas transfer allowance at the time.
This change in 2017 also meant you may not have paid tax if you transfer to a QROPS provided by your employer, and if you live in the country your QROPS is based in, and the transfer does not exceed your available overseas transfer allowance.
Expert advisers
Our experience of overseas/expatriate tax and retirement options means we can help you negotiate this very complicated area of financial planning. To speak to one of our pensions experts please get in touch with your nearest office.
This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product.
Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
The information in this article aims to provide information. However, this is not intended to form professional advice nor should it be relied upon as such and before taking any particular action, specific and personal advice should be obtained. All levels and basis of, and relief from taxation illustrated here are subject to change. Before making any decision, we recommend you consult your financial planner to consider your particular investment objectives, financial situation and individual needs.
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