QROPS

During our working lives we build up our pensions nest-egg to enjoy in retirement and free us from financial worries.

It's vitally important to get the most out of this hard-earned pension pot.

Let’s now try to cut a swathe through this impenetrable pensions jungle and explore one valuable option, QROPS, that has recently been made available courtesy of the UK Govt’s HM Revenue & Customs (HMRC).

HMRC had to make this an option as a member of the EU. As a UK resident you have the right, therefore to move your pension to the country in which you intend to take your retirement benefits.

Your Pension and Retirement Income

When placing your money into a UK personal pension you receive tax relief on the contributions at your normal rate of income tax.

However, when you start to draw the benefits in retirement you will be taxed on at least 75% of the pot that you have built up as if it were earned income.

Depending on how you choose to take the benefits from your personal pension pot, once those benefits have started, your beneficiaries will either get nothing upon your death or the remainder of the pot less a 35% tax charge.

There are similar restrictions with company pension schemes, although they vary depending on the scheme terms.

A New Way

If you're about to move abroad or already reside abroad, you have a new option.

It can be arranged for your pension pot to be accessed in a different way via QROPS.

These schemes do vary in their approach, but they must all comply to the existing HMRC rules for the first five years after the pension has moved outside of the UK.

Most Qualifying Recognised Overseas Pensions Schemes will then allow you to nominate what you wish to do with this money.

As there will no longer be a need for the QROPS provider to report to the HRMC regarding how their rules are being applied to your money, you can do as you wish with your money.

Case Study

For example, Mr Brit-Expat moved to the Costas two years ago. After careful consideration, he then chose to transfer his pension fund into a QROPS partly because he wanted more control over where his money is invested. Mr Brit-Expat can then benefit in three years time.

Mr Brit-Expat also liked the idea that his Qualifying Recognised Overseas Pension Scheme could pass on to his chosen beneficiaries without probate, often a very lengthy process.

Of course, had he already been non-UK tax resident for five or more years, he could transfer his pension into a QROPS and immediately take the benefits in full.

Free And Unfettered Access

Money that is transferred into a QROPS can be wholly accessed.

However, this benefit is not available until the individual who owns the account has been out of the UK for at least five complete tax years. Money drawn from the pension fund in this way will be liable for tax in the new country of residence, so care must be taken at this stage as to how benefits are applied.

Tax treatment is favourable in Spain, France, Portugal and, indeed, most of the EU.

There is no tax to pay unless withdrawals are taken and the pension can be structured in such a way so that minimal local taxes are paid.

Solving Exchange Rate Dilemma

The Euro is the home currency for those living in Spain, therefore, sterling is not the currency of choice.

We have seen sterling pension income fall by 20% in the last 12 months simply because of the exchange rate fluctuation.

This is quite a big pay cut!

Qualifying Recognised Overseas Pensions Schemes solve this exchange rate dilemma because they can be denominated in Euros, the home currency.

Would you like a free fact sheet and guide to QROPS? ... Just fill in the simple form you'll find on our main financial services in Spain page ... or ask him any other financial questions you have.

Check out also other financial articles written by Robin ...

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