Monday, 6 September 2010

QROPS Week - Day one

This is the start of QROPS Week. An article will appear here daily dealing with different aspects of QROPS. Day one starts today with some of the most frequent questions.

  • Questions & Answers

  • Finding an adviser

  • Ask your own Questions


Let’s start with a definition. Qualifying Recognised Overseas Pension Schemes (QROPS) were introduced in April 2006, by the UK Government, as part of a process called Pensions Simplification (that’s not what I called it!).

I would like to present the first article this week in a ‘Question and Answer’ format which should cover the main issues for those of you who live in Spain or indeed those who intend to live in Spain.

What’s the minimum amount I can transfer into a QROPS?
Technically there is no minimum that you can transfer, though there is one that should be considered. The HMRC rules provide for a cash withdrawal of all funds below a ‘trival’ amount. In the tax year 2010/11 that is set at £18,000. Clearly there is no point in transferring less than £18,000 as the fund can be encashed. If you have any difficulties with this contact your pension provider or email  me

Is the transfer into a QROPS expensive?
The main cost associated with a QROPS is the preliminary registered scheme
transfer work that is required before your pension assets can pass into a QROPS. This is specialist work and I’ve never thought cheapest is best in professional advice. However, it must be reasonable. A really good financial adviser, who is properly authorised and regulated, will put the costs in writing, before expecting you to sign up to their scheme. Not only should they declare the immediate costs but also the ongoing charges. To test if it reasonable you may also ask the adviser to declare their commissions, not only up front (initial) but also recurring, sometimes called ‘trail commission’.

What can I invest my QROPS assets in?
There is a flexible choice open to you and part of a good adviser’s process is to determine and agree an investment strategy which closely matches your needs. Some advisers always recommend one type of investment on a ‘one size fits all basis’. Please ensure that you are getting personal advice.

Will any benefits I take from QROPS be taxed?
QROPS income is generally not taxed at source. The tax treatment of what you receive is very favourably treated in Spain, though you need individual advice to explain how it affects you.

Can you please explain the five year rule?
After you have been away from the UK for five or more complete tax years and you have transferred to a QROPS, your fund falls under the tax jurisdiction of Spain. That means any income is subject to tax under Spanish rules and the requirement to purchase an annuity drops away. Generally speaking, the taxation levels in Spain are more favourable than the UK. However, even though there is no requirement to buy an annuity from a pension provider, there is an advantage in having your QROPS income treated as an annuity for tax purposes.

What will happen to my QROPS when I die?
Any funds remaining when you die will either be paid to those nominated by you as beneficiaries or those same beneficiaries may simply continue deriving the same tax free advantages you were enjoying in your lifetime.

Are there any circumstances in which I shouldn't transfer to a QROPS?
If you want the certainty of income and are prepared to hand over your fund to a pension provider, then an annuity might suit you better than QROPS. I would not suggest you to transfer to QROPS if you intend to be expatriate for less than six years, but you need advice from an authorised and regulated adviser. I can, of course, recommend an appropriate adviser, if you email me

I’ve heard about unscrupulous QROPS providers and intermediaries, any
comment…?
In May 2008, Her Majesty’s Revenue and Customs (HMRC) withdrew status from all Singapore based QROPS. This action emphasises the importance of taking independent advice from industry experts who are in regular contact with HMRC to ensure that any transfers do not nor are likely to fall foul of HMRC regulations. I also think you need to carefully consider protecting the investment funds within your pension.

* * * * *

If you have your own question, I’d be delighted to answer it. Those of you who live in Spain or intend to live in Spain should be very careful when choosing an adviser. Any adviser can advertise on the internet or in a newspaper but that does not guarantee that they are properly authorised and regulated.

You can write to me with your personal experiences or to be put in touch with my recommended adviser by sending me an email

From my own experience, I only ever recommend advisers that I know and even then I am happy to help my readers by ‘looking over their shoulder’. Whatever you decide to do please tread carefully.