What are the benefits of a QROPS?

A QROPS can offer potential benefits for expats planning to retire overseas.

However, the benefits of a QROPS will depend on several factors, such as your location and where the QROPS is based.

Some of the potential advantages of a QROPS include:

Income Tax

Pensions in the UK are liable for Income Tax if your total annual income exceeds your Personal Allowance, currently set at £12,570 for 2023/24.

The rate of Income Tax you pay depends on your Income Tax band but can be between 20 and 45%.

However, with a QROPS, your pension may be taxed more favourably or avoid Income Tax altogether, depending on your location.

Those living in a country such as the UAE with a double taxation agreement (DTA) with the UK and a zero Income Tax rate may be able to access their pension without any tax penalties.

Read our guide on pension tax to learn more.

Inheritance Tax advantages

Like British pension funds, QROPS are generally exempt from Inheritance Tax (IHT). That is because a QROPS does not form part of your overall estate.

However, IHT rules for the country where you are a tax resident may apply. It is recommended that you seek expert tax advice to ensure you are as tax-efficient as possible.

Pension Commencement Lump Sum (PCLS)

A QROPS will generally offer a pension commencement lump sum (PCLS) of up to 25% or 30% of the value of the pension fund (depending on the jurisdiction in which the QROPS is operating). The pension fund balance is usually applied to provide a drawdown pension.

Currency fluctuations

UK pensions are paid in Sterling. This means if you leave your pension in the UK, it will need to be converted to the local currency.

Poor exchange rates and fees can have a negative financial impact on your pension pot. However, a QROPS can help you avoid exchange rate risk by taking your retirement income in a currency of your choice.

Pension consolidation

If you have multiple pensions, a QROPS can be used to combine them – this is called consolidation.

Pension consolidation simply means combining more than one pension into a single pot. Doing this can make your retirement fund easier to manage and may provide other benefits.

Investment options

Compared to traditional UK-based pension schemes, QROPS typically offer a wider range of investment options. However, the options available will often depend on the operating jurisdiction of the QROPS.

Some of the investment options may include:

• Shares (equities)
• Government and corporate bonds
• Cash deposits
• Commercial property
• Investment funds

Certain assets cannot be held in a QROPS. For example, residential property and tangible assets, such as art and wine, are prohibited.

While these assets cannot be held in a QROPS, they can be transferred to a QNUPS.

Can any UK-based pension be transferred?

Most types of pension schemes can be transferred to a QROPS. This includes:

• Private defined contribution pensions
• Workplace pension – sometimes known as occupational pension schemes
• Defined benefit pensions

Be aware that by law, you must seek advice from an FCA-regulated financial adviser if you wish to transfer a defined benefit pension with a value greater than £30,000. The adviser must have permission for the activity of ‘advising on pension transfers and pension opt-outs’.