Page 1 of 6

What is a QROPS?• AQROPSisaQualifyingRecognisedOverseasPensionSchemethathasmetthecriteriadefinedby

Her Majesty’s Revenue & Customs (HMRC). Any QROPS can, in principle accept a transfer from a UK registered pension scheme.

• Since 6th April 2006, HMRC has allowed individuals to transfer their UK pension funds to a Qualifying RecognisedOverseasPensionScheme(QROPS)basedinanotherjurisdiction.

What do we mean by recognised in a Qualifying Recognised Overseas Pension Scheme?• QROPS are recognised byHMRC,howeverthisdoesnotmeanthattheyareapprovedbyHMRC.

AQROPSisnormallyapprovedinitsjurisdictionunderlocalrules,forexampleinGibraltar.ItisthensubmittedtoHMRCtoobtainaQROPScertificate,forwhichtheschemehastomeetcertaincriteria.At this point it is recognised and added to HMRC’s list of recognised schemes. HMRC can withdraw the QROPScertificateiftheschemedoesnotcontinuetomeetthecriteriatoberecognised.

What is the difference between QROPS, QOPS, QNUPS?

• QROPS – Qualifying Recognised Overseas Pension Scheme. Designed to accept the transfer of a UK registered pension scheme, typically for an individual who is retiring overseas. UK registered pensions are only permitted to transfer into another UK registered pension or into a QROPS.

• QOPS–QualifyingOverseasPensionScheme,anewacronym,introducedbyHMRCinDecember2013.UKresidentindividualscanusethesetoobtainUKtaxreliefoncontributionstoanoverseaspensionscheme.Thesearedesignedfornon-UKdomiciledindividualswhowishtosaveintoagloballymobilepension.

• QNUPS–QualifyingNonUKPensionScheme.Suitableforanindividualwhowishestomakesupplementarypensioncontributionsinataxefficientmanner.

For professional advisor use only

QROPS Questions and Answers

Simplifying QROPS

What is a Benefit Crystallisation Event?• Abenefitcrystallisationevent(BCE)occurswhenanindividualisentitledtoreceiveabenefitfromtheir

totalpensionfunds,forexample,whentheytakebenefitsuponretirement.ThepaymentofatransfervaluetoaQROPSisalsoclassedasaBCE.

• EachtimeaBCEhappens,thetotalpensionfundsaclienttakes(or‘crystallises’)willneedtobetestedagainsttheirLifetimeAllowance(LTA).ThistestisgenerallycarriedoutbytheschemeadministratororschemetrusteesandtheHMRCreportingframeworkhasbeendesignedtocaterforthis.

• TheLTAisnotinitselfalimit;benefitsabovetheallowancecanbepaidbuttheexcesswillthenbesubjecttoanLTAcharge.Anadditionaltaxchargeof25%willbeleviedonfundswithdrawnasanexcessincomeor55%ifdrawnasalumpsum.

• The LTA does not apply to any investment growth within a QROPS.

What are the minimum and maximum ages that a client can take their pension?• Theminimumretirementage,whenbenefitscanbetakenis55.

• Themaximumagetocommencetakingbenefitsisnormally75.

How long does it take to transfer into a QROPS?• Theprocessistypicallycompletedwithin6-8weeks;however,applicationsmaytakelongerifthey

include the transfer of several historic UK pension schemes.

How much can a client withdraw as a lump sum?• After5yearsofnonUKresidency,aclientisabletowithdrawupto30%ofthefundvalueasalump

sum(comparedto25%intheUK).Theresidualamountmustprovideapensionincome,whichcanbetakenatanytimeuptotheageof75,althoughincreasedflexibilityisexpectedtobringQROPSinlinewith UK pensions.

How much can a client withdraw in any one year?• There is no requirement to purchase an annuity at retirement. Once a client has considered whether

theywishtotakeataxfreelumpsum,anyresidualfundvaluecangointowhatisknownasincomedrawdownorwithdrawaloffunds.Ifaclientchoosestousethismethod,withdrawallimitswillbewithindefinedparameters,asoutlinedintheUKgovernment’sGADtables,althoughincreasedflexibilityisexpectedtobringQROPSinlinewithUKpensions.

• GADstandsfortheGovernmentActuary’sDepartment.TheGADtablesshowhowmuchpensioncanbetakenforeach£1,000ofcapitalinvestedinapensionfund.TheGADratesaredependentonageandcurrentlongterminterestrates(asmeasuredbyGovernmentsecurities).

• Incomedrawdownfromthefundmustcommencebeforeage75.

-Beforetheageof75,anincomeofbetween0%and150%oftheGADratecanbetaken from the fund and a client may vary the level of income drawn each year.

-Afterage75,aclientmaydrawanincomelevelofbetween50%and150%oftheGADrate.

• LinktoGADtables:https://www.gov.uk/government/publications/drawdown-pension-tables

Page 2 of 6

Page 3 of 6

How is QROPS income taxed?• SomeQROPSareabletopayincomegross.Itisthentaxedintheclient’scountryofresidencein

retirementwhereitissensibleforclientstotakelocaltaxadvice.

What happens to a QROPS pension on death?• Upondeath,thevalueofthepensionfundisprotected.Schemetrusteesareabletopayadependant’s

pensionifprovisionhasbeenmadeforthis.ThereisnotaxpayableifthememberwasanonUKtaxresidentformorethan5years.

• Ifdeathoccursbeforeage75,therewillbenotaxpayable.

Can an individual add to their QROPS on a regular basis?• Anindividualcanmakecontributionstotheirpensionfundinavarietyofways:

-Lumpsumcontributionsbychequeortransferfromtheirbankaccount

-Regularpaymentsfromdisposableincome

-Thetransferofexistingpensionbenefits.

Can further contributions be made to a QROPS which arose from a frozen UK pension?• Yes, most QROPS providers will allow a client to continue to invest additional funds either as a

lump sum or regular payments.

Can an individual continue to work and still draw their pension?• Yes,anindividualcandrawapensionandcontinuetowork.

Can Protected Rights be transferred to a QROPS?• Yes,itispossibletotransferaProtectedRightsfund(pensionmoniesbuiltupfromNationalInsurance

contributionrebates)intoaQROPS.

What restrictions are there to the investments linked to a QROPS?• AQROPSwilltypicallyallowmembers,toinvest

theirpensionfundinthefollowingassetclasses:

-Sharesandotherstock-marketportfolios

-Fixed-interestsecuritiesandotherbonds

-Unittrusts,OEICs,offshorefundsandother pooled funds

-Bankandbuildingsocietyaccounts

-Insurancebonds

- Commercial property.

• RememberthatlowerfixedQROPScostscanoftenbe availableifasinglecustodiansuchasonoffshore portfoliobondisusedtoholdassets.

Insomeinstances, QROPS can pay income gross.Clientsshouldtake

local tax advice.

Page 4 of 6

“Holding a QROPS within aportfoliobond

gives access to a wide range of assets, subjecttoHMRC’s

four tests.”

What are the four tests in relation to permitted and prohibited investments?• Thereiscurrentlyadefinedlistofpermittedandprohibitedinvestmentsdeterminedbymeansoffour

tests.Aninvestmentisjudgedpermissibleifit:

- Satisfiesthedutyofcareonthepartoftheschemeadministratoranddoesnotcontravenethe‘sole purpose’requirement.Thesolepurposeofapensionschememustbetheprovision,foritsmembers, spousesanddependants,ofbenefitsonretirementanddeath

- Iscommercialandenteredintoonan ‘arms-length’basis

- Doesnotgivemembers/connectedpersons furtherpersonalbenefits(otherthanthe solepurposebenefit)fromtheinvestment

- Canreadilybevaluedbyindependent third parties.

Who manages the investment of the pension fund?• QROPS trustees do not give any advice in relation

to QROPS investments or the taxation position. However QROPS trustees do have the ultimate say over whether an investment is permitted. A professional advisor is usually appointed to provide investment advice; most trustees will only accept pensions businessfromqualifiedandregulated professional advisors.

What is the increased flexibility that is being brought in from 6 April 2015? • Asfrom6April2015,individualsovertheageof55arepermittedtowithdrawupto100%ofadefined

contributionpensionscheme,subjecttoUKtax.HMRCannouncedon19December2014thatthesamelevelofflexibilitywouldbepermittedwithinQROPSbuthassinceconfirmedthattherequirementtouse70%ofthefundtoprovideanincomeforlifewillbekeptinplacetemporarily.

• Definedcontribution,ormoneypurchasepensionschemesarethoseinwhichthebenefitsat retirementarecalculatedbasedonthecontributionspaidbyanindividualortheiremployerandtheirinvestment growth.

Will the new flexibility apply to Defined Benefit pension schemes?• No.TheGovernmentbelievesthatthebenefitsofdefinedbenefitschemesaresuchthatindividuals

shouldnotbepermittedtotaketheirentirepensionatonetime.

• Definedbenefitorfinalsalaryschemesarethoseinwhichthebenefitsatretirementarecalculatedbasedontheindividual’ssalaryandlengthofservice.

Will an individual be able to transfer out of a defined benefit scheme to a defined contribution scheme including a QROPS?• Asfrom6April2015anindividualisnotpermittedtotransferoutofanunfundeddefinedbenefitscheme.

Thesearenormallypublicsectorschemessuchaspolice,army,andsomecivilserviceschemes.

• AnindividualisabletotransferoutofafundeddefinedbenefitschemeprovidingtheyhavebeenadvisedtodosobyaUKFCAregulatedadvisor.TheQROPSBureaucanprovideguidanceontherulesandtheprocessforclientsseekingtotransferoutofadefinedbenefitscheme.

Simplifying QROPS

Page 5 of 6

Important NotesTheinformationcontainedwithinthisdocumenthasbeenproducedbyTheQROPSBureau,onbehalfofHansardInternationalLimited.Ithasbeenproducedfor general information purposes only and does not constitute investment advice.

AllHansardInternationalproductsarecoveredbytheLifeAssurance(CompensationofPolicyholders)Regulations1991.Taxconsequenceswilldependon an individual’s circumstances and residence, and may change over time. Applicantsareadvisedtoseekindependentprofessionaladvicebeforeapplying for any product or if their tax circumstances change during the contract term.

Past performance is not a guide to future performance. Unit prices can go downaswellasup.Unitpriceperformancemaybeaffectedbymovementsinexchange rates.

For full details of Hansard products, please refer to the product literature.

Thismaterialisintendedtobefortheuseofprofessionaladvisors.TheQROPSBureaudoesnotgiveadvicedirectlytomembersofthepublic.

TheQROPSBureauhastakenallreasonablemeasurestoensurethattheinformationcontainedinthisdocumentisaccuratebasedonitsunderstandingofcurrentlegislation.TheQROPSBureaucannotacceptresponsibilityorliabilityforerrors in or omission from any information given and for any consequences arising.

Wherelocaltaxationinformationhasbeenprovided,thisisbaseduponagenericunderstanding of the jurisdiction as a whole. Taxes may vary regionally due to local taxofficeinterpretations,andtaxrulesmaychangeonaregularbasis.Thisisonlyaguideanditishighlyrecommendedthatyouseeklocalspecialisttaxadvice.Pension trustees may require specialist tax advice.

Hansard International Limited HarbourCourt,LordStreet,Box192,Douglas,IsleofManIM991QL,BritishIsles

Telephone:+441624688000Fax:+441624688008Website:hansard.comRegisteredNumber032648C

RegulatedbytheIsleofManInsuranceandPensionsAuthority

Simplifying QROPS

Page 6 of 6HO2043O10/07/15