To make a compliant UK pension transfer – and reduce your exposure to a potential tax penalty of up to 55% on the total transfer value – you must transfer into a fund on the HMRC Recognised Overseas Pensions Scheme (ROPS) list. In 2015, this list replaced the HMRC’s Qualified Recognised Overseas Pension Scheme (QROPS) list which had been in place since 2006.
While the overseas fund must appear on the ROPS list to make a compliant transfer, since 2015 HMRC has made it your responsibility to find out if you have to pay any tax on your pension transfer. HMRC doesn’t guarantee transfers to ROPS list funds will be free of UK tax. As such, it is vital, that you seek specialist advice on QROPS/ROPS transfers to ensure a penalty tax is not incurred.
More detail about HMRC’s QROPS list and ROPS list.
Nik Hayes a UK Chartered Accountant now living in Australia, explains why he sought expert QROPS advice for his own transfer, despite having substantial financial expertise himself.
Effects of changes to UK pension regulations in 2015
Changes were introduced to UK pension transfer regulations in July 2015 (as part of the Freedom & Choice in Pensions legislative changes).
A major impact of these changes is HMRC now only allow lump sum overseas UK pension transfers for those individuals who are 55 years or over and are members of the appropriate Recognised Overseas Pension Scheme (ROPS) approved Fund.
The term ROPS refers to the HMRC approved list of pension schemes based outside the UK.
Failure to transfer into a scheme on the ROPS list could result in an unauthorised tax penalty of up to 55% of the total transfer value.
On 1 July 2015, the HMRC ROPS list replaced the HMRC Qualified Recognised Overseas Pension Schemes (QROPS) list, which was put in place in 2006.
Along with a slight change in name, some of the fund eligibility requirements were also changed. Many funds – both in Australia and globally – were removed from the list and are no longer eligible to transfer funds into.
Until these changes, Australia had been the leading destination for pension transfers: unsurprising given the high number of British expatriates in Australia.
In April 2015 there were 1,654 eligible Australian schemes on the QROPS list – 41% of the global market – and Ireland the second largest centre, comprised 21% of the global market. The reason HMRC delisted many of the Australian funds, and others globally, is thought to be compliance with the UK Pension Age Test. This test requires that no person aged below the minimum pension age of 55 years can draw from their retirement savings, except in the exceptional circumstance of severe ill health.
Despite the majority of previously qualified Australian funds updating their trust deeds to comply with this new requirement, the funds were not included on HMRC’s new ROPS list. It is speculated the HMRC delisted these funds due to Australian statutory law allowing for payments of superannuation to people under the age of 55 in certain circumstances other than severe ill health – such as financial hardship.
Despite these changes, it’s still possible to transfer a UK pension to Australia. Now more than ever it is vital to seek specialist advice on a QROPS/ROPS transfer for the following reasons:
Avoid a penalty tax of up to 55% on transfer value
Avoid the possibility of a HMRC penalty tax of up to 55% of the total transfer value for a non-compliant transfer
You’re responsible for establishing whether your transfer will incur any taxes
HMRC doesn’t guarantee that schemes on the ROPS list are approved or qualified for UK pension transfers. It is the member’s responsibility to ensure the overseas scheme meets all the necessary HMRC requirements. The following message appears on the HMRC website: “HM Revenue and Customs (HMRC) can’t guarantee these are Recognised Overseas Pension Schemes (ROPS) or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings.”