For those living overseas or with overseas pension schemes, it may be possible to transfer their UK pension benefits to pension schemes outside the UK.
A transfer from a registered pension scheme to an overseas pension may only be permitted as a recognised transfer (normally made without a UK tax charge) where the overseas scheme is a Qualifying Recognised Overseas Pension Scheme (QROPS).
When is an overseas pension scheme
treated as a QROPS?
A scheme must meet three layers of rules and regulations to qualify as a QROPS:
- Overseas Pension Scheme regulations
- Recognised Overseas Pension Scheme regulations
- Additional reporting requirements
From 6 April 2012, these rules will be altered. Details of each layer of the rules applicable from 6 April 2012 are is laid out below. We will then detail the differences between these new rules and the current (pre 6 April 2012) rules.
Layer 1 – Overseas pension scheme
For a scheme to be classed as an overseas pension scheme under Section 150 (7)of Finance Act 2004 (other than UK Government pension schemes for civil servantsworking overseas), it:
A – cannot be a UK registered pension scheme; and
B – must be established outside the United Kingdom.
For this purpose the scheme will be treated as established in the country where its registered office and main administration are based. The location of the scheme's main administration is where the scheme's decisions are made. For trust-based schemes, this would normally be determined by where the scheme trustees are resident; and
C – must be regulated as a pension scheme in the country in which it is established, or if there is no body by which it could be regulated, then certain conditions must be met. The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI2006/206) as amended* state the conditions for satisfying the regulatory requirements where there is no local body.); and
D – must be recognised for tax purposes as a pension by the country or territory in which it is established, or if there is no such recognition in local law then The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI2006/206) as amended* also state the conditions for satisfying tax conditions.
*Regulations amended by The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Amendment Regulations 2007 (SI2007/1600) and The Registered Pension Schemes and Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 (SI2012/884).
There are conditions and requirements mentioned above to satisfy requirements C and D are set out below:
A scheme must meet at least one of the following three conditions to be deemed an overseas pension scheme:
- the scheme is an occupational pension scheme, and
- there is, in the country or territory in which it is established, a body which regulates occupational pension schemes, and
- it is regulated by that body.
- the scheme is not an occupational pension scheme, and
- there is, in the country or territory in which it is established, a body which regulates pension schemes other than occupational pension schemes, and
- it is regulated by that body; and
- neither condition 1 or 2 is met, by reason only that no such regulatory body exists in the country or territory, but (1) or (2) below is met:
- the scheme is established in a Member State of the European Union, Norway, Iceland or Liechtenstein, or
- the scheme's rules provide that at least 70% of a member's UK tax-relieved scheme funds will be designated by the scheme manager for the purpose of providing the member with an income for life, and the pension benefits payable to the member (and any associated lump sum) must be payable no earlier than normal minimum pension age. (For a definition of normal minimum pension age, see 'What do we mean by 'normal minimum pension age.)
Tax recognition conditions
A scheme must also meet the three conditions set out below to be deemed an overseas pension scheme:
The scheme must be open to persons resident in the country or territory in which it is established.
The scheme is established in a country or territory where there is a system of taxation of personal pension income under which tax relief is available in respect of pensions, and
(a) tax relief is not available to the member on contributions made to the scheme by that individual or, if the individual is an employee, by their employer in respect of earnings to which benefits under the scheme relate, or
(b) the scheme is liable to taxation on its income and gains, and is a complying superannuation plan as defined in section 995-1 (definitions) of the Income Tax Assessment Act 1997 of Australia, or
(c) all or most of the benefits paid by the scheme to members who are not in serious ill health are subject to taxation. (For definitions of normal minimum pension age and the ill-health condition, see 'What is meant by 'normal minimum pension age'?' section below.)
It may be important to note that 'tax relief' for the purposes of this condition includes the grant of an exemption from tax. In order for condition (c) to be met, provision for serious ill-health under the pension tax scheme of the country in which the scheme is established should fundamentally adhere to those provisions which apply to a member of a UK registered pension scheme.
The overseas pension scheme is approved or recognised by, or registered with, the relevant tax authorities as a pension scheme in the country or territory in which it is established.
Layer 2 – Recognised overseas pension scheme
For an overseas pension scheme to be treated as a recognised overseas pension scheme, the scheme must meet the following conditions in addition to those for an overseas pension schemes in accordance with Section 150 (8) of Finance Act 2004. To meet the requirements, the scheme must ensure that where tax relief is available to a member of the scheme who is not resident in the country or territory in which the scheme is established, the same or substantially the same tax relief must be available to local residents regardless of whether the member was a local resident when they joined the scheme of at any other time they were a member of the scheme.
For the purposes of this requirement, 'tax relief'
(a) includes exemption from tax other than exemption by the use of double taxation arrangements (an agreement between the country or territory where the scheme is established and another country or territory with a view to affording relief from double taxation), and
(b) is any tax relief that is available under the system of taxation of personal income in the country or territory in which the scheme is established.
And then meet one or more of the following conditions:
A – be established in a Member State of the European Union, Norway, Iceland or Liechtenstein, or in a country or territory (other than New Zealand) with which the UK has a Double Taxation Agreement that contains exchange information and non-discrimination provisions, or
B – satisfy the requirement that, at the time of the recognised transfer, the rules of the scheme provide that:
- at least 70% of the funds transferred will be designated by the scheme managerfor the purpose of providing the member with an income for life.
- the pension benefits (and any associated lump sum) payable to the memberunder the scheme to the extent that they relate to the transfer, are payable no earlier than normal minimum pension age*.
- membership of the scheme is open to persons resident in the country or territoryin which it is established.
* For a definition of normal minimum pension age, see 'What is meant by 'normal minimum pension age'?'.
NOTE: Although Condition B only needs to be satisfied at the time of the transfer, if in practice the QROPS disregarded the requirements then the scheme risks losing its QROPS status. In any case, the overseas scheme will still have to comply with local jurisdiction requirements.
Also, if member of such a scheme returns to UK, then payment benefits may be unauthorised so the member may need to pay unauthorised payment charges if the benefits are more than the equivalent for a UK registered pension in respect of the UK tax-relieved funds.
C – at the time of the recognised transfer, the scheme is a KiwiSaver scheme as defined in section 4(1)(interpretation) of the KiwiSaver Act 2006 of New Zealand.
Layer 3 – Notification and additional reporting requirements to HMRC on the scheme manager of a QROPS
To meet these requirements the scheme manager must complete HMRC form APSS251**, to:
- notify HMRC that the scheme is a recognised overseas pension scheme andhave provided evidence of that if required by HMRC
- inform HMRC of the name of the country or territory in which the scheme isestablished and the scheme manager's name (individuals or company), and the contact details for the scheme along with address where day to dayadministration is carried out.
- undertake to notify HMRC if the scheme ceases to be a recognised overseaspension scheme***
- undertake to provide HMRC with certain information on making payments in respect of relevant scheme members including the member's name address and if relevant NI number within 90 days of the payment being made or deemed as being made. Examples of this are details of any lump sum payment or commencement of a pension to a UK resident, UK relevant member or a member who has been non-UK resident for less than ten complete tax years.
- undertake, from 6 April 2013, to provide evidence that the scheme is a ROPS every 5 years to maintain its QROPS status, once granted.
In addition, the member payment provisions will apply to benefit payments where the member:
(a) is resident in the UK when the payment is made (or is treated as made), or
(b) is not UK resident at the time the payment is made, however they have been resident in the past five tax years from the time the payment is made.
NOTE: A payment for this purpose includes a transfer from the scheme. When reporting is required, the scheme manager must report using Form APSS 253 (available from www.hmrc.gov.uk).
In response to this registration, HMRC will send the scheme a letter of acceptance confirming that the scheme is a QROPS. The letter will show the unique QROPS reference number for that scheme. Details of the QROPS will be entered on the APSS database.
HMRC may ask the scheme manager for more evidence before issuing a letter of acceptance (or rejection).
* Imposed under Regulation 3 of The Pension Schemes (Information Requirements – Qualifying Overseas Schemes, Qualifying Overseas Schemes and Corresponding Relief) Regulations 2006 (SI2006/208) as amended by The Registered Pension Schemes and Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 (SI2012/884).
** This form is available from the HMRC website at www.hmrc.gov.uk
***If a QROPS ceases to be a recognised overseas pension scheme after it is successfully registered as a QROPS, future transfers from a registered UK pension scheme would be subject to unauthorised payment charges. Currently, the member would be responsible for reporting to HMRC payments they receive, during the period of ten tax years immediately proceeding the tax year that they became non-UK resident. From 6 April 2013, the former QROPS will continue to be responsible for reporting to HMRC benefit payments made to members during the period of ten tax years immediately suceeding the tax year that the member became non-UK tax resident. HMRC form APSS251B should be used to notify HMRC if the scheme no longer meet the definition to be a recognised overseas pension scheme or the scheme does not wish to retain QROPS status.
What changes have been made to the regulations for overseas pension schemes and recognised overseas pension schemes from 6 April 2012?
||Before 6 April 2012
||From 6 April 2012
There is an optional
requirement for an
overseas pension scheme
to be approved, registered
or recognised by the local
However, the scheme can
instead meet the 70% of
the transfer value must be
used as an income for life,
where benefits cannot be
|It is now a compulsory
requirement for an overseas
pension to be approved,
registered or recognised by the
tax authorities in the country or
territory in which it is
taken earlier than normal
minimum pension age
to be treated as a
The scheme can treat
pension income for local
differently to overseas
members. i.e. paid net of
local income tax for locals
but gross for overseas
The scheme must treat tax
reliefs and exemptions (other
than due to double taxation
arrangements) available in the
scheme’s jurisdiction the
same for local and overseas
members of the scheme.
be treated as a
A New Zealand scheme
can qualify without meeting
the 70% of income and
minimum normal pension
age rule. This is because
New Zealand schemes
are regulated in New
Zealand and New Zealand
has a DTA with the UK.
A New Zealand scheme can
only meet the rules if it is a
KiwiSaver Scheme, or the
scheme meets the 70% of the
transfer value must be used as
an income for life and the
benefits cannot be taken
earlier than normal minimum
pension age rule.
This third change has been introduced to stop the exploitation of the current rules in New Zealand, where schemes with 100% return of funds as a lump sum were promoted.
What changes have been made in terms of
reporting to HMRC?
||Before 6 April 2012
||From 6 April 2012
Reports need to be
submitted by 31 January
following the end of the
tax year in which the
payment is made.
Pension benefits payments
need to be reported within
90 days of the payment date.
QROPS providers need to
report for payments made
within five complete tax
years of the member
Pension benefit payments
need to be reported for
payments made within ten
complete tax years from a
member becoming non-UK
on benefit payment
The benefit payment
report does not ask for an
NI number and does not
specify that the address
for the member must be
the residential address.
The benefit payments report
information to be submitted:
NI number for member
the residential address. where relevant; and
Details required to
This requirement is not
expressed in the reporting
Only the HMRC forms
request this information.
Where a QROPS is a
company, HMRC will require
the names and addresses
of all directors as part of the
for HMRC in relation
changes to a
This requirements is not
expressed in the reporting
Only the HMRC forms give
requirements for approval,
cessation and changes to a
QROPS are all added to the
Which funds should
be reported to
This is not expressly
mentioned in the
The new regulations clearly
state that reporting is only in
respect of UK tax-relieved
funds transferred to the
scheme (or further
contributions attracting UK
tax relief, if any).
What changes have been made to the reporting requirements within the Finance Act 2004?
From 6 April 2013, the Finance Act 2013 will amend the Finance Act 2004 to reflect the following changes in reporting requirements and penalties for non compliance.
||Before 6 April 2013
||From 6 April 2013
Undertaking to be
recognised as a QROPS by
No requirement to prove
the QROPS continues to
meet the rules to be
ROPS. Only removal of
status if HMRC found the
scheme to no longer be
meeting the rules.
A requirement for a
QROPS to provide
evidence that it
continues to meet the
rules to be a ROPS
every five years from
Requirement to continue
reporting member benefit
payments during the period
of ten tax years immediately
preceding the tax year the
member becomes non-UK
resident once no longer
holding QROPS status.
No requirement on
responsible for ongoing
The former QROPS
will be required to
and maybe penalised
The former QROPS
will be required to
and maybe penalised
for not doing so.
Penalties that HMRC could
impose on a QROPS
providers who failed to meet
Removal of QROPS
and removal of
What is meant by ‘normal minimum pension age’?
As a general rule, individuals reaching the age of 55 (or individuals reaching the age of 50 before 6 April 2010 who opted to take their pension before 6 April 2010). Certain categories of occupations eg footballers may have a right to take benefits before the normal minimum pension age. However, to retain that age in the receiving scheme they must use the ‘block transfer’ rules that apply to transfers between UK registered schemes.
For ‘block transfer’ conditions to be met, two or more members must request a transfer of benefits from that scheme to the same QROPS, having not been members of the QROPS scheme at the date of the transfer for more than 12 months, and the transfers must be made as a single transaction to the QROPS provider.
The protected pension age would only apply if all benefits under the receiving scheme could be matured at that earlier age. Otherwise, the protection would not be available and the normal minimum pension ages shown above will apply.
Revision of normal minimum pension age due to ill-health
Under a UK-registered pension scheme a member may take benefits at any age where the scheme administrator accepts qualified medical advice to the effect that the member satisfies the ill-health condition, and so is and will continue to be medically incapable (either physically or mentally) as a result of injury, sickness, disease or disability of continuing their current occupation and as a result of the ill-health ceases to carry on the occupation.
Scheme rules can carry stricter definitions of ill-health and can stop the payment of an ill-health pension if the member subsequently recovers from ill-health.
Pension benefits may be fully commuted to a lump sum before age 75 on the grounds of serious ill-health. To satisfy the requirements the scheme administrator must have received evidence from a registered medical practitioner that life expectancy of the member is less than one year.
The commutation can only apply to uncrystallised rights and will be limited in the case of a client with protected rights and a surviving spouse/civil partner* where commutation is limited to 50% of those rights.
Benefits paid on these grounds will be tax free provided they do not exceed the member’s Lifetime Allowance. Any lump sum paid in excess of the Lifetime Allowance will be taxed unless the client has registered for primary and/or enhanced protection.
* As defined by the Civil Partnership Act 2004.
Making transfers – Requirements of a UK registered pension scheme provider to authorise a transfer to a QROPS
The transferring scheme needs to establish if the receiving scheme is a QROPS. To help, HMRC has published a list of schemes that are QROPS, together with their country of establishment (link to website).
The list is limited to those schemes that have given their consent to have their details published – not all QROPS providers will appear in it.
If the overseas pension scheme does not appear on the list, the scheme administrator of the registered pension scheme can ask HMRC to confirm that the receiving scheme has notified HMRC that it is a recognised overseas pension scheme and has met the qualifying conditions to be a QROPS.
A transfer to an overseas pension scheme that is not a registered scheme or a QROPS, is not a recognised transfer and would therefore be subject to unauthorised payment charges.
Any request for a transfer of an Old Mutual Wealth registered pension to an overseas pension scheme would only be permitted following evidence from the QROPS of their status (QROPS reference number/letter of acceptance) Old Mutual Wealth may also request further information to satisfy due diligence requirements.
There are further requirements if the transfer payment includes a contracted out benefit (ie a Guaranteed Minimum Pension or Protected Rights). Before the transfer can proceed, the UK scheme must:
- Obtain written confirmation from the member that they understand the risks in transferring this type of benefit overseas because the overseas pension scheme may not provide the same degree of security or priority to the contracted out benefit.
- Take responsible steps to satisfy themselves that, where the overseas pension scheme is an occupational pension scheme, the member has entered the relevant employment.
- Take reasonable steps to satisfy themselves that the member has received a statement from the overseas scheme showing the benefits to be awarded in exchange for the transfer payment.
- Test to see if the relevant part of the transfer payment is of an amount at least equal to the cash equivalent of the Guaranteed Minimum Pension Rights or Protected Rights, as calculated and verified in a manner consistent with the regulations made under Section 97 of the Pension Act 1993.