QROPS (short for Qualifying Recognised Overseas Pension Schemes) can make a significant difference to an expat’s or international worker’s pension pot, and yet they are not as widespread as you might think.
Their biggest advantage is their tax treatment. Without using an HMRC approved scheme, expats transferring pensions outside the UK incur a large tax bill on the transaction. But the jurisdiction in which you hold your QROPS need not be the same country you live in.
Emerging financial centres like Malta may be keen to offer favourable treatment to attract the investment business.
But the benefits of having a QROPS are not confined to tax. There is also the question of choice. By opening up yourself to the choice of all of the QROPS on HMRC’s list of approved schemes, there are hundreds of different schemes at your arrangements. And if you have a pension pot that is big enough to justify the fees, you may even fashion a tailor made QROPS to fit your requirements, in a jurisdiction of your choice (as long as that jurisdiction and scheme receive HMRC approval).
The underlying asset classes on offer under QROPS may also be more diverse than those on offer with UK pensions. Whether this is because overseas jurisdictions have a culture of offering a certain asset class or whether their regulations permit different arrangements, or perhaps you just want access to a particular provider that does not operate in the United Kingdom.
Finally, there is the inheritance tax treatment of QROPS to commend them. Inheritance tax of QROPS varies widely between products, and when you take advice on this point you should receive information about you the arrangements after your death would play out and interrelate with the UK system.
So with all these benefits, are there any disadvantages to QROPS? There are not so much disadvantages as hoops to jump through to make sure that your situation still matches up with the criteria attached to QROPS. So you must ensure that you reside abroad for at least five years from taking out the QROPS, for example. You must also stick to schemes on the HMRC’s list. However, with proper advice, these limitations are easy to navigate.