Qualifying Recognised Overseas Pension Schemes (QROPS) are annuities based in offshore financial centres, which offer investment opportunities and tax breaks that are often unavailable in the UK based retirement savers.
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What is QROPS?
Qualifying Recognised Overseas Pension Schemes (QROPS) are annuities based in offshore financial centres, which offer investment opportunities and tax breaks that are often unavailable in the UK based retirement savers. QROPS helps the NRIs to ensure that their retirement fund accumulated in the UK can be transferred to India in a tax-effective and seamless manner. QROPS can help you ensure that your retirement fund accumulated in the UK can be transferred to India in a seamless and tax-efficient manner. Before the expats leaving the UK had to pay huge taxes while transferring their pension funds to anywhere in the country. HMRC (Her Majesty Revenue & Customs), a UK based regulator responsible for tax collection recognised this gap and introduced a Qualifying Recognized Overseas Pension Scheme to help the expats leaving the UK in the process of fund transfer.
What does QROPS cover?
- Lump Sum Benefits
- Provision of a Retirement Income
- No Compulsory Annuity Purchase
- Reduction in Currency Risk
- Greater choice of investment options
- UK Inheritance Tax
- No Lifetime Allowance Pension Cap
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Benefits of QROPS:
- Remove the Requirement to Purchase An Annuity – Before it was mandatory to use 75% of the British Pension Pod to purchase an annuity that offers guaranteed income for a lifetime. The drawback was it yields lower returns, subject to income tax and when the expat dies, the pension fund dies with them. However, by transferring the UK pension into QROPS, this issue is avoided and in case of demise, the fund that has not been used to provide an annuity to the annuitant is passed onto the dependents of the family.
- Easily Pass on Wealth – In QROPS, transferring funds to the beneficiary is generally faster, easier and less stressful. Along with the benefit of seamless fund transfer, the QROPS is also tax efficient.
- Allows 25% Tax-free Lump-sum – Many QROPS offer up to 25% as a tax-free lump-sum.
- Avoid Inheritance Taxes of Up to 45% – The UK pension will be subject to the death tax, if an expat is a resident overseas and if it is established by HMRC that Britain was the country regarded as home at the time of death. A tax charge of 45% will be levied as the UK pension fund is passed on to the beneficiary. However, this charge does not apply to QROPS, where the accumulated fund can be transferred to the beneficiary free from tax at the source.
- Offers greater flexibility and Increases income draw-down – If an NRI residing in the UK for five years transfers their UK pension into QROPS they can take advantage of significantly more flexible income draw-down rules. On UK pensions, the draw down amount is computed using the Government Actuarial Department (GAD) rates. These rates are currently very low. With QROPS, the jurisdiction rules allow the trustees to use different computations than the UK GAD. This can allow the income to be up to 50% more than the UK pension. Moreover, in QROPS the UK income taxes are also avoided, which generally ranges 20%-50% depending on how large the fund is.
- Tax Efficiency – In many countries, lower taxes are imposed on income as compared to the UK; including the pension scheme. An individual can therefore receive income from the retirement fund at considerably lower rates depending on where they live. Thus, by transferring the UK pension to QROPS a higher income and considerably more comfortable retirement can be achieved.
- Transparent Charges – While transferring UK pension to QROPS, the advisors clearly outline the applicable charges so the NRIs have the clarity where their money is invested. On the contrary to this, the UK charges are usually percentage-based whereas QROPS enjoy fixed fees.
- Consolidate Multiple Pension into One to Manage Scheme – Easily With QROPS, an individual can consolidate any number of UK pension funds to one fund to manage it easily. This allows the investors to gain from improved investment choice, maximize growth and save on overall charges. Moreover, it eases the process of fund management as the individual has one point of contact in the retirement provisions.
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Why is QROPS important?
Any non-UK resident (or UK resident with plans to leave the UK) is usually eligible to establish a QROPS, regardless of their nationality. Consideration must be given as to the most appropriate jurisdiction in which to establish the QROPS. This will depend on the individual’s country of residence and future plans. It is possible to transfer most types of UK-registered pension scheme to a QROPS. This includes both individual pension plans and employer sponsored pension schemes. It is not usually possible to transfer a pension that has already been converted to an insurance company annuity or a defined benefit pension that is already in payment. Moreover, it is possible to consolidate multiple pensions within a QROPS.
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