A Qualifying Recognised Overseas Pension Schemes, or QROPS, is a pension scheme that is preferred among ex-pats due to its greater benefits compared to the UK state pension. While the benefits have decreased over the years, it has retained its popularity. Read on to understand why it could be the best pension option for you.
You can access your funds earlier
The UK state pension is only accessible once you reach a certain age. As of right now, it’s 66, but there have been talks that it could go up to 68 by 2040. With QROPS, you can get access to your pension at 55, and get a higher tax-free lump sum of 30% compared to 25%.
Currency flexibility
A QROPS allows you to draw payments in any currency, keeping you protected from volatile exchange rates.
Better inheritance options
With a UK state pension, your transfer options are limited to your spouse, but with a QROPS, you can choose any beneficiary you want. Additionally, since a QROPS is not under UK jurisdiction, it frees you from paying the UK inheritance tax, which could go up to 45%.
No annuity requirement
75% of a UK pension fund has to go towards buying an annuity, which provides you with a guaranteed income for the rest of your life. However, this results in low yield, income tax, and upon your death, you can’t pass your remaining pension fund to your beneficiaries. QROPS hold no such requirements.
Lower tax rates
Most countries have a lower income tax compared to the UK, and if you live in one of these countries, you can receive your pension at a lower tax rate. By consolidating your pension into a QROPS, you could potentially get a higher income.
More transparency
The UK state pension imposes confusing and outdated charging schemes that could lead to pensioners receiving less than their expected income. With a QROPS, you can get help from a financial adviser who can tell you about each charge, so you always know where your money went. If you want to know more about QROPS and the possible charges, you can check www.pensionsforexpats.co.uk.
No lifetime allowance (LTA) charges
The UK imposes additional taxes on pension savings that go above £1.25 million. If you transfer your pension funds to a QROPS, you won’t have to worry about LTA taxes. However, if your UK pension is above the LTA by the time you transfer to a QROPS, you will get charged, so it’s best to transfer your pension early and let it grow as a QROPS.
While QROPS has many benefits, it’s not 100% perfect. The question of whether you should use it or not depends on your circumstances as well. For example, if you live in a country with a higher income tax than the UK (i.e. Belgium or Germany), then you might lose more by putting your pension in a QROPS since then your pension will be subject to higher tax rates. Consult with a financial adviser so you can select the most financially sound course of action.
