Brexit and Qualifying Recognised Overseas Pension Schemes (QROPs)
A lot has been written about Brexit and QROPs but rarely have the two been combined in one article. A QROPs is simply an offshore pension plan that will accept transfers of frozen UK pensions. This enables the QROPs plan holder to have complete control (trustee approval permitting) over the direction of investment and the timing of taking benefits, which can be taken from age 55 onwards. A QROPS can be a very effective, pension vehicle, if used correctly.
Brexit on the other hand, has been written about for years. One of the issues that concerns QROPs and Brexit is that a large amount of transfers from UK pensions are made to QROPs in Malta and Gibraltar. If such transfers take place to these countries, they normally relatively smooth in process and without penalty as long as the person transferring the pension benefits is a resident in another EEA state and does not become resident outside of the EEA within 5 full and complete tax years of the transfer. However, transfers to QROPs in locations outside of the EEA (where the QROPS and pension scheme member are NOT both resident in the same country) will attract a penalty based on 25% of the fund value, known as the “Overseas Transfer Charge” (OTC).
The point here is that if the UK falls out of the European Union (EU) without a deal, (that includes the continued ability for those with UK pension benefits to be able to transfer them to EU/EEA member states), the UK will become a third Country with regard to the EU and potentially, the EEA. The UK Government could elect to make transfers to Malta & Gibraltar QROPS subject to the 25% OTC. With the uncertainty surrounding the timing, substance and implementation of Brexit, there is no way to ascertain certainty over this but the risk is something to bear in mind if a transfer of UK benefits is being considered now.
Another issue to consider is that it can take up to 3 months (and beyond) to complete a transfer of pension benefits from the UK. For those considering a transfer now, should bear in mind the proximity to October when Brexit is currently scheduled to take place. There is a window of opportunity to take action before then and we at Abacus Wealth, are happy to give free initial consultations on the options available.