The Power of ROPS (“QROPS”)
Are you looking to retire abroad? Here at Scottsdale, our financial advisers specialise in helping British expats navigate the financial aspects of relocating overseas.
ROPS stands for “recognised overseas pension scheme”, and it refers to overseas pensions which meet specific requirements set by His Majesty’s Revenue and Customs (HMRC) in the UK.
Find out more below.
What are ROPS?
ROPS are sometimes called “QROPS”, and are a popular choice for British expats retiring abroad. QROPS were introduced in 2006 to provide a means for expats to “take their pensions” with them if they wanted to retire in another country.
The primary goal of QROPS is to provide more control and flexibility for pension holders who are planning to retire overseas, allowing them to avoid potential complexities and restrictions tied to UK pension laws.
How do ROPS work?
If you worked in the UK for a UK-based employer, then your workplace pension scheme will likely have been based there, too. However, should you keep your pension(s) there if you move abroad for retirement?
Under ROPS legislation, HMRC provides a list of other pension schemes based outside the UK. They could be suitable destinations for an individual to move their UK pension savings (although HMRC stresses that you should seek financial advice before doing so!).
What is the difference between ROPS and QROPS?
The reason for the two names is that HMRC changed QROPS to ROPS on 1 July 2015. By removing the word “qualifying” from the name, the UK government hoped to remove confusion that it was endorsing any particular overseas scheme.
On 1 July 2015, HMRC also took the opportunity to update and reformat its ROPS List. Since then, it has been regularly reviewed on the first and fifteenth working days of each month.
Comparing ROPS to a SIPP
These acronyms probably sound baffling and strange! In short, these are two different types of pensions that are popular with expats.
A ROPS involves moving your pension overseas to a scheme registered with HMRC. A SIPP is shorthand for “self-invested personal pension”, and is a type of pension typically based in the UK.
A SIPP is a personal (or “private”) pension, allowing you to save/invest for retirement whilst potentially benefitting from UK pension rules – e.g. claiming tax relief on your contributions (although this depends on factors, such as how long you have lived abroad).
A SIPP can be a popular choice for expats who wish to retain protection from UK regulations and enjoy a high degree of investment choice and control.
However, SIPPs can have certain drawbacks. You may face higher costs or charges, such as platform fees, share trading charges, or fund manager fees. Some individuals may also be intimidated by the thought of managing their own investments.
On that latter point, a financial adviser can be very helpful – assisting with finding a good SIPP provider for your needs and managing the portfolio to help you stay on course towards your long-term investment goals.
Who can benefit from a ROPS?
ROPS (“QROPS”) can be an attractive option for certain UK nationals who are living abroad or who plan to do so. Here are some examples of individuals who might consider it:
- British expats. Depending on your current (or upcoming) country of residence, a ROPS could offer some potential tax advantages.
- Those seeking multi-currency options. If you want to avoid or mitigate the impact of currency fluctuations on your pension, a ROPS could help.
- People with a defined benefit scheme. If you want more investment flexibility with your pension, a ROPS could provide this to you.
What are the benefits of a ROPS?
Not everyone should go for a ROPS pension. The scheme’s suitability will vary depending on your specific financial goals, circumstances, timescales, country of residence and priorities.
For instance, with a ROPS you can receive your pension in your local currency. This helps to reduce the impact of a weakening pound (GBP) on your retirement savings.
Your ROPS pension may also be taxed at a more favourable rate in your country of residence than in the UK. However, this depends on where you live.
What are the drawbacks of ROPS?
ROPS is not ideal for every British expat. For instance, if you live in a high-tax country, then you may end up paying a higher rate than in the UK. You may even pay twice if there is no “double taxation agreement” (DTA) between the two countries.
Local pension rules may not be as favourable as a UK pension. Perhaps there are stricter rules about how you can access your funds (and how much).
Typically a ROPS will higher costs and charges, than a comparable UK based pension scheme.
Another issue to consider is protection. In the UK, the Financial Ombudsman, the Financial Conduct Authority (FCA) and other regulators help to safeguard pension savings. In other countries, protections may not be as robust.
What is involved with a ROPS?
There are several steps involved with a successful ROPS transfer. It is vital to work with an experienced financial adviser to ensure you navigate them properly.
The first step is usually to have a consultation with an adviser to explore your suitability for a ROPS. Assuming there may be a good fit, your adviser will help you examine different schemes on the market.
Once the ROPS is selected, your financial adviser helps you with the application process. If your current UK pension provider approves the transfer, the funds are then moved to the overseas scheme.
With the process complete, your adviser can help you with the ongoing management of your ROPS pension. This will ensure you continue to follow a suitable long-term strategy for investments and withdrawals.
Interested in starting a conversation about your pension with an expat financial adviser? Get in touch to arrange your free, no-commitment consultation with a member of our team.
We look forward to meeting you!
