A guide to QROPS and SIPPs
Since the introduction of Qualifying Recognised Overseas Pension Scheme (QROPS) in April 2006, thousands of overseas Brits have moved their pensions to this scheme – but is it right for you?
In this article, you’ll find out how it works and how they compare to SIPPs.
Here’s what you’ll learn in this article:
What’s the difference between a QROPS and a SIPP?
Qualifying Recognised Overseas Pension Scheme (QROPS) is a scheme recognised by HMRC, which means that HMRC allows it to receive funds from a UK pension.
People tend to think of QROPS as a separate kind of product, but many of them are essentially SIPPs, or group personal pensions that are domiciled outside of the UK.
What determines whether a scheme qualifies as a QROPS?
Like with British pensions, strict rules determine whether a scheme qualifies or not. HMRC publishes a list of all qualifying QROPS.
In the main, these rules are very similar to those with UK pensions. For example, funds are usually inaccessible before the age of 55, and you don’t pay UK income tax (though you may be subject to local income tax).
QROPS are limited to non-resident British citizens (or those who intend to move within the year). They’re also open to non-British citizens living abroad, or planning to move in the next 12 months. Transfers to a QROPS can attract a 25% ‘overseas transfer charge’, depending on the scheme and your circumstances.
A self-invested personal pension (SIPP) is a type of pension ‘wrapper’ that allows a wide range of asset classes to be invested in.
If you’re an expat, a conventional SIPP is not open to you. Instead – you’ll need to hold what’s conveniently referred to as an ‘international SIPP’. As such, any comparison we make here will be between a QROPS and an international SIPP, rather than a ‘regular’ SIPP.
International SIPP vs. SIPP
There are some differences between the two but the most important thing for the expat to know is international SIPPs better support holding and transferring between currencies – which is essential if you’re drawing a UK pension and spending your retirement living abroad.
The companies that offer them also tend to have a better understanding of local tax laws.
SIPP vs QROPS?
QROPS were generally considered to be a better option for expats up until 2017, which was when the Overseas Transfer Charge was brought in. Since then, the choice has been less cut and dry, but there are still specific instances in which one of the two comes out on top.
The savvy expat will want to know which of the two schemes is cheaper, but the answer really depends on the value of your pension pot and what you want to do with it.
In some instances, leaving your pension where it is could be the best option. Speak to an expert who can advise on this if you’re unsure.
Why you might consider a QROPS
There are a number of benefits, which include…
- They can be more tax efficient for large pension pots: Currently, QROPS is more tax efficient for portfolios at £1 million or more, which is when the Lifetime Allowance comes into effect.
- If you want full separation from the UK: A QROPS allows you to remove all of your assets from the UK entirely – and hold a pension that is no longer subject to changes with UK tax legislation.
- You can take a slightly higher tax-free lump sum when you retire: A QROPS allows you to take a 30% pension commencement lump sum, whereas a SIPP only allows for 25%.
As such, you may be able to withdraw more every year – though it’s important to remember that these limits were set to help stop you from running out of funds.
- You could lower your inheritance tax: UK pension schemes currently incur a 45% tax charge when you die. But if you’ve been living abroad for more than five years, your QROPS will not incur UK inheritance tax. There is, however, the possibility of inheritance tax in your country of residence.
When an International SIPP might be better
International SIPPs are a strong contender under certain circumstances, especially if you’re considering returning to the UK.
- Arguably safer: SIPPs are protected by the FSCS and FCA. Your QROPS might not have the equivalent amount of regulatory protection, or any protection at all. Take a look at our guide to SIPP protection to find out how the FSCS can help to protect your pension pot.
- Easier to consolidate: SIPPs are often more flexible when it comes to consolidating old pension schemes, especially if these old pensions were held in the UK.
- Could be more flexible: 2015’s pension freedoms have allowed those drawing from British pensions to enjoy a greater level of flexibility than ever before. Depending on where your QROPS is located, you may not enjoy the same amount of choice.
Can I transfer a SIPP to a QROPS?
Yes, if you’re planning to move abroad, you can transfer a regular SIPP to a QROPS. That said, not all SIPP platforms support this – and before transferring out, you may need to switch SIPP providers to one which will.
It goes without saying – before making such a transfer, you’ll want to explore your options to make sure that a QROPS (as opposed to a SIPP) is right for you. Get in touch if you’d like us to connect you with an advisor who can help you to explore your options.
Can I transfer a QROPS to a SIPP?
Yes, and it’s not uncommon amongst expats who’ve made the decision to return and reside in the UK.
That said, the specifics will depend on the QROPS in question. In many instances, you can hold onto your QROPS, where it will, for all intents and purposes be treated as a SIPP.
Alternatively, you might be able to transfer it to an alternative scheme, such as a Qualifying Non-UK Pension Scheme (QNUPS). This might be a better option, but very much depends upon your needs and circumstances.
This could be a particularly tricky scenario, and it’s a good idea to seek professional advice before seriously considering a transfer.
Can you have both?
There’s no such thing as a ‘QROPS SIPP’ but you could hold both separately, if you wanted. For example, you could move back to the UK, and hold onto your QROPS, and then later choose to open a SIPP with a domestic provider.
Speak to an expert today
If you have questions and want to speak to an expert for the right advice to plan your retirement, call us today on 0808 189 0463 or make an enquiry here.
Then sit back and let us do all the hard work in finding the expat pension expert with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.