What's the difference between QROPS, QNUPS and SIPPS Pensions?
The three primary options for those looking to transfer their UK pension pot overseas are QROPS, SIPPs and QNUPS. Read our pension comparison guide to learn what option is right for you.
Speak to a specialistAccording to research funded by the OECD, nearly five million British nationals live abroad.
And while some may plan on returning to the UK, others may decide to retire overseas.
If you plan on spending your golden years abroad, you face a tough decision – do you leave your pension in the UK or transfer it to your new country of residence?
For those who wish to take their UK pension with them, there are three main options – QROPS, SIPPs and QNUPS.
While they share some similarities, there are key differences and use cases for each.
In this pension comparison guide, we look at the three primary options for those looking to transfer their UK pension pot. We will explore the advantages, use cases and things to consider for each to help you make a more informed decision.
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What is a QROPS?
QROPS stands for qualifying recognised overseas pension scheme.
A QROPS is a pension wrapper that follows the rules set out by HMRC, allowing them to receive transfers from UK-registered pension schemes.
For a QROPS to be ‘qualified’ by HMRC, the overseas pension scheme generally needs to have similar rules to a UK-registered pension plan. For example, not being able to access pension benefits until age 55.
QROPS are often used by those who plan on retiring overseas. Because they can receive transfers from UK-registered pension schemes, a QROPS allows expats to transfer their pension savings to an alternative arrangement when leaving the UK. Doing so can provide several benefits.
QROPS key features
QROPS key features include:
- A QROPS is regarded by HMRC as eligible to receive transfers from UK-registered pension schemes.
- They can be used by expats who have built up a UK pension but intend to retire overseas.
- Under current QROPS legislation, you can take up to 30% of your total pension fund free from UK income tax.
- QROPS can help protect your UK pension by reducing currency risk.
The advantages of using a QROPS
The benefits of a QROPS will depend on several factors, including your location and where the QROPS is based.
Some of the potential benefits include:
- Those living in a country 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.
- QROPS are not part of your overall estate, meaning they are generally exempt from Inheritance Tax (IHT).
- A QROPS generally offers a pension commencement lump sum (PCLS) of up to 25% or 30% of the value of the pension fund.
- A QROPS can help you avoid exchange rate risk by taking your retirement income in a currency of your choice.
Things to consider about a QROPS
As of 2017, pension transfers to a QROPS now face a 25% tax charge.
This overseas transfer charge applies to the total amount transferred to a QROPS. However, there are exceptions, such as:
- If you are a resident in the same country as the QROPS you are transferring to.
- You are a resident of a country in the European Economic Area (EEA), and the QROPS is based in another EEA country or Gibraltar.
- The QROPS you are transferring to has been provided by your employer.
QROPS use cases
A QROPS is typically suited to expats who may have built up a UK pension fund but intend to retire abroad.
The benefits and drawbacks of a QROPS will depend on its location and the scheme’s rules, among other factors. Before transferring your pension savings, speak with a pensions expert to determine the right option for you.
To learn more about QROPs, read our comprehensive guide to QROPS.
What is a SIPP?
A self-invested personal pension, or SIPP for short, is a type of defined contribution pension.
A SIPP is more hands-on than other types of pensions, offering greater control and flexibility over pension savings.
The SIPP holder is responsible for the investment decisions of the pension fund. Alternatively, the SIPP can be managed by a financial adviser.
SIPPs typically offer a much wider range of investment options. This makes them a good choice for those trying to build a more diverse investment portfolio.
SIPP key features
Some key features of SIPPs include:
- Allows you to manage your pension pot and make all of the investment decisions.
- Provides a much broader range of investment options.
- SIPPs can be opened by anyone under the age of 75.
- Income can be taken from a SIPP from the age of 55.
- If the SIPP holder dies before age 75, the beneficiaries can inherit the entire fund tax-free.
The advantages of using a SIPP
SIPPs offer several benefits that make them an attractive option for retirement planning. Some of the key benefits include:
- SIPPs give you great control and flexibility over how and where your retirement savings are invested.
- SIPPs allow you to invest in a much broader range of assets.
- Pension contributions into a SIPP benefit from tax relief for UK residents.
- Investments held in a SIPP grow free from Income Tax and Capital Gains tax.
- The potential to avoid UK inheritance tax upon death.
Things to consider about a SIPP
The main thing to consider before opening a SIPP or transferring an existing pension into one is the work involved.
You are responsible for running and managing your portfolio, as well as all of the investment decisions. Knowing how to achieve the most optimal results requires the right level of market knowledge.
Even for those confident with marking their own investments, doing the research and managing the portfolio can be time-consuming.
For those who do not have the time or are not confident with making their own investment decisions, there is the option to have the SIPP professionally managed.
SIPP use cases
A SIPP could benefit those who want more control over where their retirement fund is invested and access to a much broader range of investment options.
SIPPs may also be the better choice for those looking to transfer an existing pension. In most cases, transferring an existing pension to a SIPP is free.
Read our SIPP guide to learn more about their benefits and for a more in-depth product breakdown.
What is a QNUPS?
QNUPS stands for qualifying non-UK pension scheme and can be used by UK and non-UK residents.
While a QNUPS is referred to as a ‘pension scheme’, it is more of a set of rules. By following these rules, a QNUPS becomes ‘qualified’ and can provide certain tax benefits. The main one is that it can allow you to legally avoid Inheritance Tax (IHT).
A QNUPS is often used by high-net-worth individuals (HNWIs) who may have maxed out their pension contribution limits. A QNUPS can also be used by expats who can no longer take advantage of UK-registered pension tax benefits.
While QNUPS share some similarities with QROPS, some key differences separate the two.
QNUPS key features
A SIPP could benefit those who want more control over where their retirement fund is invested and access to a much broader range of investment options.
SIPPs may also be the better choice for those looking to transfer an existing pension. In most cases, transferring an existing pension to a SIPP is free.
Read our SIPP guide to learn more about their benefits and for a more in-depth product breakdown.
The advantages of using a QNUPS
A QNUPS offers several benefits for expats who can no longer contribute to a UK pension plan and want to secure their retirement savings.
Some of the key benefits include:
- Assets in a QNUPS grow free from Capital Gains Tax (CGT).
- It allows you to legally avoid Inheritance Tax (IHT).
- QNUPS are widely available in many countries.
- A QNUPS enables you to make pension contributions beyond your annual and lifetime allowance.
- A QNUPS offers a wide range of investment options and can hold assets such as stocks and shares, commercial and residential property and even alternative investments such as wine and art.
- Can reduce the tax owed when withdrawing money from a Universal Life insurance policy.
Things to consider about a QNUPS
While QNUPS offer a wide range of benefits, there are some things to be aware of as they will not be the right choice for everyone.
The first thing to consider is that, unlike a QROPS, a QNUPS cannot receive UK tax-relieved pension scheme transfers. There is also no UK tax relief on contributions.
The second point to consider is that while QNUPS offer tax benefits, this largely depends on how they are set up and managed. Speaking to a qualified specialist can help ensure the QNUPS is set up optimally based on your circumstances.
QNUPS use cases
QNUPS are often used by high-net-worth individuals (HNWIs) who may have reached their pension contribution limits. They are also an option for expats who can no longer take advantage of UK-registered pension tax benefits.
To learn more, read our guide to QNUPS.
QROPS vs. SIPPs vs. QNUPS – Which is best?
While QNUPS offer a wide range of benefits, there are some things to be aware of as they will not be the right choice for everyone.
The first thing to consider is that, unlike a QROPS, a QNUPS cannot receive UK tax-relieved pension scheme transfers. There is also no UK tax relief on contributions.
The second point to consider is that while QNUPS offer tax benefits, this largely depends on how they are set up and managed. Speaking to a qualified specialist can help ensure the QNUPS is set up optimally based on your circumstances.
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