What is a QROPS?
Living abroad and unsure what to do with your pension? Wondering how transferring it might impact your finances? We’re here to help you understand how a qualifying recognised overseas pension scheme (or QROPS) could work for you. Let’s get into it.
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What is a QROPS pension?
A QROPS pension stands for Qualifying Recognised Overseas Pension Scheme, and is a special type of pension designed for people who are considering a more permanent move abroad and want to take their pension with them.
Rather than just any old pension scheme based abroad, a QROPS is one that meets special requirements set by HMRC, including that it must have a beneficial owner (usually the pension saver), trustees and that it can receive UK-based pension benefits.
Launched in 2006, QROPS pension schemes could potentially be deemed appropriate for people (primarily expats) who wish to emigrate from the UK and retire abroad, or for somebody who was born outside the UK but has accrued UK based pension benefits and wishes to transfer them abroad.
QROPs, much like SIPPs and SSASs, can also be used to make a wide range of investments too, but this can have its own problems, and can often turn out to be mis-sold.
How does a QROPS work?
How a QROPS works can differ from scheme to scheme, but many will allow a wide choice of investments, and will pay out a tax-free lump sum upon retirement. It may also be possible to name beneficiaries to have any money left in the pension when you die.
Often, they are based offshore from the mainland UK, in places like Malta, Gibraltar, Guernsey or the Isle of Man.
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Are QROPS a good idea?
QROPS can be a good idea for expats looking to secure their pension benefits when moving abroad. Though all QROPS change depending on the nuances of the scheme and the country they’re established in. Some of the benefits of a QROPS can include:
- Tax efficient for large pension pots
- Seperate your assets from the UK so they’re no longer subject to UK tax legislation
- Higher tax-free lump sums in retirement
- Lower inheritance tax
It’s worth remembering what QROPS were initially designed for: to allow British expats to easily manage their pension arrangements when living abroad. However, a HM Revenue & Customs review found that this wasn’t always the case.
In the 2012 review, they found QROPS were being marketed to individuals as a way to avoid tax – which wasn’t the reason why QROPS were introduced. Since this review, changes have been made to the QROPS scheme.
In short, QROPS are subject to the tax legislation of the country in which they operate, so this is important to take into account when deciding whether a QROPS is right for you.
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What is a recognised overseas pension scheme (ROPS)?
A recognised overseas pension scheme (ROPS) needs to meet the following criteria and conditions set by the HMRC:
- Tax recognition test to make sure the scheme is recognised for tax purposes
- Regulatory requirement test to make sure the scheme meets regulations in the other country
- Pension age test to make sure no retirement benefits are paid to a person under the age of 55
- Benefit tax relief test makes sure that any tax-related affairs of the pension benefits is consistent for both residents and non-residents of the country it’s situated in
If a ROPS fails to meet or comply with the above, it can be excluded by the HMRC.
Mis-sold QROPS and pension claims
Much like with the current mis-sold SIPP scandal, an issue with the abuse and mis-use of QROPS pensions is bubbling away, too.
Pensions like these can allow a greater range of investments, but this can also include high-risk investments – ones that sit outside the jurisdiction of the regulators at the FCA, often being based, registered or floated abroad.
This distance from the regulator’s watchful eye automatically raises the risk of the investment, and indeed, many high-risk investments have flopped, collapsed or turned out to be fraudulent, losing their investors hundreds-of-thousands of pounds.
Examples include everything from forestry schemes to overseas property funds.
Learn more about mis-sold pensions.
Did you invest in a QROPS?
If you invested in a QROPS then you may have been mis-sold.
We’ve seen examples where financial advisers have transferred people’s hard-earned pensions into QROPS schemes, without considering their suitability for either the underlying investments, or their retirement plans, including whether they even wanted to retire abroad!
Provided that your financial adviser was regulated here in the UK, you may be able to make a claim for a mis-sold pension due to negligent financial advice.
Can I claim QROPS compensation?
As with SERPS, SIPPS and other types of mis-sold pensions, you may be able to make a claim if you can show you were mis-sold or ill advised.
For example, you may have a claim if, when you transferred to a QROPS, you experienced any of the following:
- Your individual circumstances weren’t considered by the financial adviser
- You were not made aware of the risks involved of QROPS
- You were told to transfer your entire pension savings into a QROPS
- You were told you must, or it was necessary, to transfer your pension to a QROPS
If any of the above applies to you, you may have a claim to make. If so, we’d love to hear from you. At Spencer Churchill Claims Advice we have experience with mis-sold pensions. Giving you a FREE initial assessment on your claim. Contact us here to find out more about QROPS compensation claims.
Do you know how people complained about mis-sold investments and pensions in the last year?
A lot. Over twenty thousand complaints were made about mis-sold pensions and investments in 2020/21, a figure which had doubled since the year before.. It’s no secret how serious this problem is, and it just seems to keep getting worse.
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