Overseas Transfers
Most UK pension plan members are able to transfer their benefits to other approved pension schemes. For those living overseas or those with overseas pension schemes, it may also be possible to transfer their benefits to pension schemes outside of the UK.
The procedure for overseas transfers has been simplified significantly since April 2006. Now, as long as the overseas scheme is recognised by HM Revenue & Customs as an approved arrangement (known as a Qualifying Recognised Overseas Pension Scheme (QROPS)), the transfer can be processed just like a transfer to a UK scheme.
A QROPS is a pension scheme set up outside the UK that:
- is regulated as a pension scheme in the country in which it was established, and
- it must be recognised for tax purposes (i.e. benefits in payment must be subject to taxation).
A list of QROPSs is available on HMRC’s website.
UK schemes, when they receive an application to transfer benefits overseas, must refer to the QROPS list. If the overseas scheme is included, the transfer can proceed.
If the overseas scheme is not included, it can apply to HMRC for QROPS approval. If approval is not granted, the transfer cannot proceed.
There are further requirements if the transfer payment includes a contracted out benefit (i.e. a Guaranteed Minimum Pension or Protected Rights). Before the transfer can proceed, the UK scheme must:
- obtain written confirmation from the member that he understands the risks in transferring this type of benefit overseas because the overseas scheme may not provide the same degree of security or priority to the contracted out benefit;
- take reasonable steps to satisfy themselves that, where the overseas scheme is an occupation pension scheme, the member has entered the relevant employment; and
- 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.
Impact on the Lifetime Allowance
The transfer is a benefit crystallisation event for the purpose of the member's lifetime allowance. The amount crystallised is the amount of the transfer. The taking of benefits relating to the transferred amount from a QROPS is not a benefit crystallisation event for the purposes of the individual's lifetime allowance. If the transfer results in the member's lifetime allowance being exceeded, the rate of tax chargeable is 25%. The 55% rate cannot apply, even though the payment in effect is a "lump sum", because it is not being paid "to the individual", so does not fall within the 55% rate charging provision.- I have emigrated to Australia. My pension scheme is refusing to transfer my benefits to my Australian employer’s pension scheme. Why is this?
- Firstly, you need to check you have the right to transfer. If you left the scheme before 1 January 1986, you may not have a right to transfer.
If you have a right to transfer, your UK scheme administrator should be carrying out the QROPS checks. If the Australian scheme is not on the approved list, the administrator should be making an application. Only then, if HMRC does not approve the Australian scheme as a QROPS, can the transfer be rejected.
- I am a UK resident. I am planning to retire to Spain in 10 years time. Can I transfer to a Spanish scheme now so I can access it when I eventually retire?
Yes, as long as you have a right to transfer and the Spanish scheme is a QROPS and is willing to accept a transfer for a non-resident.
Q & As
