QROPS Pensions – Rules & Regulations

QROPS pension schemes rules are strictly laid down and determine whether or not an overseas pension is given the status of Qualifying Recognised Overseas Pension Scheme (QROPS).  When expats such as ourselves are considering transferring their pension from the UK to an overseas pension scheme, complying with the rules is paramount.

A successful QROPS transfer

For a QROPS to be successful, each of us must take into account all of the following elements.  If a client does not receive proper advice on these elements before considering moving the UK pension, it is likely that the QROPS application will fail. Be aware of the numerous non-qualified “QROPS shops” opening along the Costas. This is a lucrative business for the providers and for the client/pension holder, but we should all deal only with fully qualified and authorised advisory firms. Please be aware of this vital aspect of your planning. Check the authorisation – is the adviser a member of the Chartered Insurance Institute (C.I.I.)? If so, ask to see their membership card. Is he/she UK and internationally qualified? Ask to see the proof!

The rules

The rules required to meet the Qualification standard are well documented but little understood by the wider public. Should an application be accepted we should be aware of two most important issues.

The first issue is the jurisdiction (resident country) of the QROPS. It may be a QROPS in Luxemburg, Guernsey, New Zealand for example. There are many other countries where QROPS are based – some less secure and desirable than others.  You do not have to be resident in the same country as your QROPS.  So for example, in Spain you can have a Guernsey QROPS. Resident status of the pension scheme may well have impact upon the security of the capital sum involved.

The second issue – an obstacle for many QROPS, has been the ability to transfer a  pension to where plan-holders are able to take the entire fund as a single payment.  Do not expect to be able to “pension bust” simply by moving to a QROPS.  It is a pension after all. Even UK rules allow for access to the entire fund for the over 60s in some circumstances without the need to transfer the fund abroad – this is for holders of smaller value funds only. The main advantage of a QROPS is that we do not have to buy an annuity at retirement.  This means any money left in the QROPS pot after death can be passed onto the family or other death beneficiaries.

Notes;

It should be noted though, that UK rules allow for similar choices (death and drawdown of income and cash) without the necessity of moving the pension fund abroad. This means in many circumstances we may initially deal with a QROPS enquiry, but ultimately, leave the pension fund within UK control and rules. (This is commonly the least costly route for each client.)

Clients who may wish to exercise control over their assets within their pension fund may prefer the QROPS route as this opens a ‘hands-on’, much wider and less ‘controlled’ investment choice.

Investment choices and options

Retirement may be imminent or some time off – What is a good investment for one part of the economic cycle will not be so attractive later. For example, as we approach retirement we may wish to move our investments to a lower risk environment. In retirement, typically, we will more than likely require income from pension fund. A good QROPS will allow access to thousands of funds thus opening opportunities before retirement and reducing risk as retirement approaches.

Our ongoing day-to-day service

Another factor often overlooked at the start of the QROPS.  In addition to the change of economic circumstances mentioned above, what happens if our own circumstances change?  Perhaps a move elsewhere – or even a return to the UK.

What do we need to do to start taking benefits for our QROPS pension? In all these circumstances, and many more, you will need ongoing advice.

Retirement

Options include – how much of the fund do we wish to take in cash? Withdrawals from your investments in a QROPs range from zero to 100% of a figure provided by the Government Actuary Department (GAD). This maximum figure is calculated using interest rates at the time of retirement and your age amongst other factors.

Death

All QROPS families will have to deal with this issue at some time!  Typically, the Spouse will continue taking the full pension on the death of the QROPS holder. With many conventional pensions, the widows/widowers pension is only half or less of the original.
Finally, as with many aspects of pension planning whilst there are rules, how these rules apply to you is the important factor in the decision making process.  Choose an adviser who is not only qualified, but understands both the QROPS and UK pension rules and legislation and just as importantly, how each individual client would like to see their pension fund invested and ultimately taken.