Looking for a QROPS 2018 FAQ guide? There’s a lot of information out there on the web regarding QROPS (Qualifying Recognised Overseas Pension Schemes), and International SIPPs (self Investment Personal Pensions) however, it can be incredibly difficult to sort through all of this ‘noise’ to get to the information that you need concerning QROPS, and whether QROPS is right for you. Russell Hammond FPFS, one of our Chartered Financial Planners has put together a QROPS 2018 FAQ to help you navigate through the QROPS (and International SIPP) landscape.
1. In essence, what is the difference between an International SIPP and a QROPS
An ‘International’ SIPP is, in essence, just a UK SIPP (Self Invested Personal Pension), however, it is marketed and available to non-UK residents. SIPPs and QROPS observe a very similar underlying structure, IE; they are both set up under trust. However, a SIPP is a UK based trust and a QROPS is a trust established outside of the UK (Malta, Isle of Man, Gibraltar etc). There are, potential, taxation and succession advantages for a QROPS over a SIPP, however, these were diminished following changes in UK pension rules in 2015 for taxation on death and succession. There is the potential for a greater lump sum (30% v 25%), from a QROPS, however, this can be a moot point if you’re resident in an area of the world where pension lump sums are taxable.
2. How do advisers make money from advising on QROPS?
Most advisers generate a commission from selling you the QROPS or SIPP. This will range from, typically, 7%-12% of your transfer value. Fee based advisers will charge an initial set up fee, and then an annual management fee of, typically, 1%-1.25% per annum It is widely established that commission based QROPS advice produces an inferior outcome to the fee based option.
3. Is fee based advice (IE; genuinely independent) available for QROPS?
It is, however, international fee based financial advisers are in the minority compared to their commission based counterparts. If you Google ‘Fee based QROPS advice’ advisers that are able to provide advice on a fee only basis should rank top of the Google results.
4. If I’ve already got a QROPS can I switch adviser? Is it a massive hassle?
Yes you can and, no, it is a very straightforward process. You don’t need to inform your current adviser, they will be informed automatically by your QROPS trustees. Many QROPS holders have switched advisers where they’ve desired to switch from commission to fee based advice.
5. If I’m in a jurisdiction where flexible drawdown is not available (e.g. Guernsey) can I switch to a jurisdiction where it is (e.g. Malta)? If so, will I be taxed on transfer?
Yes, you can. No, you will not be taxed on a QROPS to QROPS transfer though there will be costs involved with arranging the switch.
6. Do I pay tax on lump sum payments and income payments from QROPS
What income tax you will pay on QROPS will be dependent upon where you are currently residing and whether there is a dual taxation agreement in place between the QROPS jurisdiction and the contracting state (where you live). Malta, as an example, has DTA’s in place with most major expat centers so you’ll ordinarily just pay income tax locally. Similarly, lump sum payments from (EU) QROPS may be paid tax free (e.g. in The Netherlands)*, at a reduced tax rate (e.g. France)* or at full income tax rate (e.g. Canada)* it is dependent upon where you’re residing when taking benefits. *as at date of this article
7. What happens if I return to the UK with my QROPS? Will I be hit with a large tax bill?
If you return to the UK with QROPS nothing, in essence, happens. You’ll be taxed in the exact same manner as someone who holds a UK pension. The nearest equivalent is a SIPP (Self Invested Personal Pension). What is probably likely to be useful though is to have your QROPS reviewed to make sure that your investment profile is right for you and to examine as to whether any costs can be cut from your QROPS arrangement. It may even make sense, for you, to switch to a SIPP. As with any transfer, you’ll need to seek professional advice on the merits of making any switches or portfolio changes.
8. Who regulates QROPS?
The QROPS it’s self will be regulated by the financial services regulator applicable to that jurisdiction, e.g. Malta Financial Services Authority.
9. Who regulates QROPS advisers?
The adivser will be regulated locally, from where he or she is providing the advice on your QROPS. So, if they are based in the UK, they will be regulated in the UK.
10. What is the overseas transfer charge in relation to QROPS?
The Overseas Transfer Charge is a 25% tax charge on transfer that became effective from the Spring Budget 2017 that applies to transfers where the individual arranging the transfer, and the QROPS, are not resident in the EU or that the individual arranging the transfer was not resident in the same jurisdiction that the QROPS was established in. Subsequent flexibility was extended to the OTC where the 25% charge could be refunded back to the member if they became resident, within a defined period of time, in the same jurisdiction as the QROPS transferred to.
11. Do I have to live outside of the UK to set-up a QROPS
No, you don’t. An often overlooked feature of the UK pensions regime is that a QROPS can provide a very tax efficient structure for those who continue to reside in the UK and whose pensions are likely to breach the Life Time Allowance, as a consequence of positive investment growth, in the future.
12. At what age can I access my QROPS pension
Same as the UK – 55. You’re ordinarily not able to access your pension earlier, by transferring to QROPS. To do so could result in you facing punitive tax charges.
13. Will my QROPS be subject to tax from future growth of the underlying investments?
No. When you transfer to QROPS you’re pension is crystallised under Benefit Crystallisation Event number 8. Therefore, there will be no further testing against the LTA. Of course, you will pay tax on the income that you withdraw, in the future, of which may have been derived from investment growth and or investment income.
14. Can more than one pension be transferred to a QROPS and what types of pensions can I transfer?
You can transfer any number of pensions to a QROPS (or SIPP), they can be of both a defined contribution or defined benefit construction. NB: If you have enhanced tax free cash entitlement, this may be lost on transfer.
15. Are ‘low cost QROPS’ available?
Yes, they are. Low cost QROPS arrangements tend to be used by fee based QROPS advisers.
The above list is by no means exhaustive. If you’d like to understand in further depth how we can help with your QROPS or International SIPP transfer, speak to us. We’re fee only (no commissions) independent, award winning and Chartered – regulated in the UK, EU and UAE.