That a British pension is only for the British would seem to be stating the obvious. This is true. It is the options available to those with rights to a British pension that make this page unique. One of the difficulties with a pension when it is not paid by the government is that it is possible that the paying authority may not wish to send funds overseas. This is clearly a disadvantage to those wishing to retire abroad. As a result of European Union laws the United Kingdom was required to establish a method of dealing with money which complied with the EU rules governing the freedom of movement of capital. In 2006 Her Majesty's Revenue and Customs (HMRC) set up a scheme which allowed Qualified Recognized Overseas Pension Schemes to be established.
The word "Qualified" has since been dropped by HMRC because it was felt that the British department guaranteed that a provider was qualified to the satisfaction of the HMRC. The list of providers is amended from time to time so it is important to keep up to date. It would not be good to hand over pension funds to an organization that cannot provided the services it purports to do. Recently a large number of organizations were deleted from the HMRC list. The most common problem was that the firms concerned were allowing beneficiaries access to funds before they reached the U.K. pension qualifying age. Although the term "QROPS" should more properly now be "ROPS" the former is still in popular use.
The QROPS facility delivers to those who have built up a British pension fund the ability to move the benefits offshore. A number of other advantages compared to the purchase of an annuity also accrue. The firms a providing scheme can receive funds without the pensioner being penalized for making an unauthorized payment or subscribing to an unapproved scheme.
Pension funds left in the U.K. are taxed on income at 45% and are taxed on death after 75 years of age at up to 45%. Any amount left in an annuity or other scheme is also lost to the pensioner on death. The employment of a QROPS attracts more beneficial tax treatment and improved terminal benefits for the pensioner who intends to reside abroad on a permanent basis. The major attraction is, of course, that the pension is effectively transferred abroad.
There are some rules applied by HMRC but these are not too onerous. The extent of the scheme geographically is almost world-wide. Any scheme must be set up in a country of the E.U., the E.F.T.A. (European Free Trade Area) and any country which has a double taxation agreement with the U.K. which includes information transfer terms and non-discrimination provisions. At least 70% of the funds transferred to a scheme must be applied to providing the pensioner with an income for life. No benefit may be paid until the pensioner attains the qualifying for receipt of a British pension. This is 55 years or 50 in exceptional circumstance of hardship or ill-health. Membership of a QROPS scheme must be open to pensioners resident in the country in which it is established but residence there is not compulsory. A scheme must be recognized as a pension by the country where it resides.
A great benefit is that any unused portion of the amount transferred to a QROPS can on the death of the pensioner be returned to a beneficiary of the pensioner's will without attracting IHT (Inheritance Tax). If a pensioner returns to the U.K. a QROPS is treated as a foreign pension and taxed on 90% of its value rather than 100% as is the case with a British pension.
The intention of the HMRC is that the pensioner be placed in exactly the same position in his place of residence as is a pensioner in the U.K. Schemes usually must have a minimum assessed pension benefit of £70.000. The purchase of residential property is not allowed under a QROPS and this provision has led to some difficulties with the recognition of schemes in New Zealand under that country's Kiwisaver Act. It is necessary for schemes to report on payments to pensioners for 10 years from the date that transfer to scheme first occurred. Schemes can be delisted by HMRC and this can be done on a country-wide basis. It is up to pensioners to ensure that they subscribe to qualifying schemes. It is very much a caveat emptor system and the HMRC bears no responsibility if a pensioner makes a wrong decision.
It is important to understand that a British Government State pension cannot take advantage of a QROPS. The latest United Kingdom budget also restricted the right of unfunded civil service pensions to be transferred offshore. It remains to be seen whether or not this is a precursor to general restrictions on capital/pension transfers. Governments in financial strife will do anything to keep your money within their grasp as the Irish, the Cypriots and the Greeks have all recently discovered. An offshore bank accounts provides the beginnings of basic asset protection.
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