A Qualifying Recognised Overseas Pension Scheme Or QROPS” allows individuals who live outside the UK, or are intending to leave the UK, to transfer their UK-registered pension into an approved offshore pension scheme without deduction of UK tax.
For those individuals that qualify for such a pension, a QROPS plan can provide greater flexibility, improved tax efficiency, and a wider choice of investment for retirement planning.
QROPS are pension funds where pension funds accumulated by an HMRC qualified pension fund in UK or Ireland can be transferred by the subscriber. These can be in his country of preference. These are approved by the UK Government (HMRC- Her Majesty’s Revenue Customs).
For UK citizens or beneficiaries retiring in UK, this is completely tax-free. But what if an NRI or PIO (who has invested in QROPS) wishes to come back to India?
Earlier there was no choice. One had to withdraw and pay taxes. But since 2006, QROPS is the way out to get your pension funds transferred from the UK to India.
HMRC has listed many Indian Pension Providers (Insurance Companies) where the funds can be transferred and you will save taxes to be paid in UK while this transaction takes place.
When the funds are transferred you can get same benefits that you were getting in UK as withdrawal or regular payouts.
Why Avail Qualifying Recognized Overseas Pension Scheme or QROPS?
The benefits of Qualifying Recognized Overseas Pension Scheme or QROPS can be divided into 2 heads. The benefits arise during the accumulation or funding phase & then the Growth or Withdrawal Phase.
Benefits of QROPS while Funding:
- Unlimited contributions can be made.
- No need to have employment (relevant) income to make contributions.
- HMRC (Equivalent to Ministry of Finance as in India) need not to be reported during accumulation.
- Can be funded by contributions and transfers from an international pension.
Benefits of QROPS while Growth or Withdrawal
- No Capital Gains tax. (You can withdraw up to 25% of your funds)
- No UK Income tax on non-UK source income from investments. In UK the income tax can be as high as 50%.
- No lifetime limits on fund size.
- Flexible investment criteria, directed by the member.
- Low tax if you withdraw after transfer to India (30% highest in India)
- QROPS may avoid local succession law. Otherwise in UK inheritance is also taxed and the beneficiary will have to pay tax to get the amount transferred in his name after the death of the pensioner.
- Pension may be paid at UK retirement age (currently 55).
Who Should Consider a QROPS?
- Expatriates saving for their retirement or who may wish to return to the UK in the future.
- High net worth UK residents who intend to leave the UK in the near future.
- Anyone wishing to transfer from an existing International Pension Plan when they reside outside the UK.
Taxation on Benefits paid by a Qualifying Recognized Overseas Pension Scheme
- The possible benefits on retirement potentially include a lump sum payment equivalent to 30 % of the fund, benefits on incapacity and early retirement and death benefits.
- If a member is Non-UK resident on retirement, there will be no UK tax payable but the member may be taxed in the jurisdiction in which they reside.
- No requirement to purchase an annuity.
Taxation of the QROPS (Post Transfer)
- Outside scope of UK income tax in most cases.
- There is No Capital Gains Tax to be paid in UK.
- No UK income tax on chargeable gains made by the QROPS.
- UK Inheritance tax would not normally be charged.
Other Benefits of Qualifying Recognized Overseas Pension Scheme
If you wish to again go back to UK after five years there is no compulsion to transfer the money again. You may have the benefits to remain invested in India.
QROPS Qualified Schemes/Companies:
Many Schemes from ICICI Prudential LI Company, HDFC Life, Excide Life, Canara HSBC, SBI Life Insurance & others qualify for the transfer. the complete list can be obtained from this link.
QROPS Transfer Process in India
General 4 simple steps to transfer UK/ Ireland pension to QROPS are:
Step 1:
Get information & details of the Pension Scheme (QROPS) in India. Fill up the forms.
Step 2 – Post receiving authorization from you the Indian Inusrance/Annuity company will get in touch with your registered pension scheme in the UK/ Ireland.
Step 3 – They will receive transfer forms from your registered pension scheme. They will complete them with all required information and documentation with your help if needed.
Step 4 – They will receive of the transfer value. These funds will be credited to your policy/ The acknowledgement will be shared with you. Your benefits in India will start.
Conclusion
QROPS can be used by individuals with an international focus as a flexible mechanism for providing retirement benefits. One is not tied to remain in UK or Ireland or have banking support there. Investors also save a good amount in tax which increased their overall retirement benefits.
In case you have benefitted from Qualifying Recognised Overseas Pension Scheme or have something to share on the process, do share in the comments section.
