In 2006 the UK government finally gave in to pressure from the EU and started allowing UK residents emigrating overseas to take their pensions with them. This was known as 'A day' in the pensions world and formed part of a much wider reform of UK retirement rules. This is when the acronym QROPS was founded. It stands for 'qualifying recognised overseas pension schemes'. HMRC then published a list of companies and trustees who had declared themselves providers of QROPS pensions in various jurisdictions around the globe. Although not 'approved' by HMRC as such these entities had to comply with certain rules set out in order to remain listed. Rules which broadly followed the UK pension regime. These rules have been refined considerably over the years since 2006 which has resulted in a considerably reduced amount of providers as well as many jurisdictions becoming largely inappropriate. The 'Q' has now been dropped and overseas pensions are now referred to as ROPS by the UK government.
So, fast forwarding to 2019 - here are the main points to consider when contemplating a potential transfer of your UK pension.
New rules introduced in the 2017 Finance Bill effectively restricted QROPS transfers to countries within the European Economic Area (EEA) - which of course includes Spain. A transfer where the QROPS trustees are
outside of this zone and/or the scheme member resides outside of this zone will likely carry a 25% transfer charge to HMRC.
In the past there were QROPS providers in New Zealand, Australia and The Channel Islands among other places. The main locations are now Malta, Gibraltar and the Isle of Man.
So why not Spain itself? Simply put, there are no institutions in Spain set up to receive and administer UK pension transfers. Although there were some banks such as Santander previously on the
list, in practice they were never used and have now been removed completely. The preferred jurisdiction for residents of Spain has always been Malta.
And the reasons for this choice are now stronger than ever following the 2017 rule changes. They are:
a) Malta has a strongly regulated and advanced financial services sector with all the main QROPS providers operating from there.
b) Malta has a dual tax treaty in place with Spain ensuring that tax cannot be paid twice.
c) Malta is inside the EEA so residents of Spain are not subject to the overseas transfer charge.
d) With all UK schemes and QROPS, benefits cannot be taken before age 55 (accept in special circumstances such as severe ill health for example). However, Malta allows flexible access to QROPS pensions post age 55 - meaning you can take as much as you want, when you want it (although one has to be mindful of potential tax implications in Spain).
Gibraltar and The Isle of Man may be alternatives for UK scheme members living in Spain who are younger than 55 but once benefits can be taken they do not offer the same tax efficiency.
a) BREXIT proofing. We are seeing evidence that increasing numbers of UK pension providers are forcing members who are living in Spain at retirement benefit age (55) to either buy an annuity (restrictive and poor value in this era of low interest rates) or transfer to a QROPS. Also the rules may be changed for the worse should there be a no-deal Brexit.
b) Stop currency risk. You can choose to have your overseas pension in Euros thereby avoiding future fluctuations in the exchange rate. You can also keep it in Sterling or have a mixture of both.
c) Avoid UK tax. Unlike a UK pension, post age 75, you can pass on 100% of your remaining QROPS to your family (or whoever you choose as beneficiaries) without the top 45% rate of tax being applied as it would be in the UK.
d) Favourable tax in Spain. Especially if you use a temporary annuity certificate issued by the trustees. This can result in tax as low as 2% to 3% only being payable at drawdown.
e) Lifetime Allowance. There are no lifetime allowance restrictions with a QROPS. This could save thousands if you have a substantial pension pot approaching or breaching the ever decreasing UK maximum threshold - currently set at £1,055,000. For pensions over the allowance a whopping 55% is payable to the UK government on drawdown.
f) Consolidate all your UK pensions into one, easy to understand pension plan.
g) Flexible Access - post age 55 take what you want, when you want it. No capped drawdown restrictions.
h) Divorce and creditor proofing. A UK court can order pension funds to be handed over or shared. This is much harder with a QROPS where the UK court has no jurisdiction.
i) A larger lump sum of 30% free from UK tax.
j) Using an adviser familiar with the Spanish system combined with a QROPS will make it easier to keep track of tax and regulation changes in your country of residence.
New rules in Malta require members to be advised by firms regulated to give advice in the member's country. The advisory firm must also have a license under the EU Mifid 2 regime which allows them to manage investments. Firms with an insurance license only are no longer able to advise on EU based pensions.
There is a 10 year reporting period from the QROPS provider to HMRC. You are free from any UK tax rules after 5 years of non residency.
Should you return to the UK the pension will be treated the same as a UK pension and taxed as such.
Patrick Macdonald ASCI
International Financial Adviser
Anyone with a UK pension living or planning to live abroad.
Members of UK personal/private pension schemes.
Members of company schemes including defined contribution and (in some cases) defined benefit (DB or final salary) schemes.
When the pension is an annuity.
When the pension is a defined benefit (final salary) scheme ALREADY in payment.
If it is the UK state pension.
When the pension is a NHS/MOD/Police or teacher DB scheme.
For a free, no obligation assessment of your own circumstances and further information please call us on 951 390 201.
We are part of a reputable international financial management firm. We are not a data broker passing your information on to other firms etc. We are licensed and authorised throughout Europe to give financial advice and arrange pension transfers. When you call us you will speak directly with the qualified, experienced adviser who will assess your pension(s) and give you a personal recommendation bespoke to your circumstances. You are under no obligation to follow our recommendation and we do not charge for your pension evaluation. So, for an initial chat why not give us a call or send a message on the form below. REMEMBER avoid scammers by only dealing with properly regulated entities.
We are British advisers living in Spain with the appropriate qualifications and experience to give professional advice here. Unlike UK based firms we have a deep knowledge of the pension laws and tax system in Spain. Although we are EU regulated we are not forced to charge you fees like a UK based firm (although we always offer this option). This means there is no initial fee taken from your investment - which in the UK is often 3% of the value.