A Rops is a foreign pension scheme with similar terms and conditions to UK pensions
If you are moving abroad it could be beneficial to transfer into one
Carefully assess the benefits before doing this to you as there are a number of risks and drawbacks to Qrops
One of the main retirement options for most investors is a UK pension scheme. But another option for UK residents and British expatriates is Recognised Overseas Pension Schemes (Rops). These are foreign pension schemes which meet HM Revenue & Customs (HMRC) rules on receiving transfers from UK-registered pension funds and must have similar conditions to UK pensions such as not being accessible before age 55.
If you are going to move abroad or have already moved abroad, a Rops could be a good option. It allows you to invest your retirement funds in the local currency and maybe the one in which you will be spending when you are retired, so removes currency risk. Some Rops allow you to invest funds and make withdrawals in more than one currency.
You also have access to a wider range of assets than with some UK pensions though, for example, certain self invested personal pensions (Sipps) in the UK also offer a wide choice of investments.
Rops are not subject to UK pensions rules so are not restricted by the UK pensions lifetime allowance limit, which has been frozen at £1,073,100 until April 2026. So if your pension is approaching this level or has breached it, it could be beneficial to transfer to a Rops.
When you transfer to a Rops, the value of your UK pension is tested against the lifetime allowance. If you have not breached it you do not face a charge, but if the value of your pension is above the lifetime allowance you face a 25 per cent charge on the amount above it. However, going forward it is not tested again against the UK pensions lifetime allowance so your fund could continue to grow without any penalties from the UK authorities.
UK pension funds are tested against the lifetime allowance when you withdraw from them and at age 75.
“For those whose pension savings are nearing the value of the lifetime allowance, a transfer to a Rops can have significant benefits,” says Rachel de Souza, private client partner at tax consultants RSM. “This is because the value of the pension fund is measured on the transfer to a Rops [but] not measured again. This means, for example, that a pension fund of £1m can be transferred to a Rops without any tax or penalty, and then continue to grow without fear of a future penalty.”
Whether you should transfer to a Rops depends on a number of factors including whether you plan to move abroad, the size of your pension and what you want to do with it. If you are remaining in the UK, even if the size of your pension is likely to breach or has breached the lifetime allowance, moving into a Rops just to mitigate the lifetime allowance is unlikely to be the best option due to a number of disadvantages and risks.
Some Rops, such as those based in Malta, allow you to take cash or income how you like in the same way as a Sipp. “You could, for example, draw a higher income in early retirement when you are most active and reduce it in later years,” says Jason Porter, business development director at tax and wealth adviser Blevins Franks. “Or you could take a lump sum and preserve the rest for a rainy day or to pass onto your heirs. But this freedom also brings more potential to exhaust your funds – unlike a UK annuity or final salary pension which provide a guaranteed income for life.”
Transferring your funds into a Rops can provide protection against UK inheritance tax. A Malta Rops, for example, enables you to pass it onto your heirs IHT-free in the same way as a Sipp or UK personal pension. But UK heirs would be subject to income tax when they take benefits from it and heirs in other jurisdictions would be subject to the tax rules there.
Rops charges can be much more expensive than those of UK pensions, though this varies from scheme to scheme. Check the charges and costs before you transfer and, if they are higher than those of your UK scheme, consider if the benefits of transferring are worth it.
UK workplace defined contribution pension default funds are relatively cheap with charges currently capped at 0.75 per cent of funds under management per year.
Sipp charges vary, generally depending on what investment options they offer, but basic investment platform Sipps can be fairly cheap. For example, Hargreaves Lansdown charges 0.45 per cent for the value of open-ended funds held within its Sipp up to a value of £250,000 after which the percentage fee reduces according to a tiered structure. You have to pay fund fees in addition to this and if you buy listed securities to pay trading charges. However, if you hold listed securities the platform fee is capped at £200 a year – regardless of the size of your holdings in the Sipp. interactive investor, meanwhile, charges a flat fee of £19.99 a month for its Sipp, plus fund fees and any trading charges.
The STM Malta QROPS, meanwhile, has an annual trustee fee of £812 or €975 (£826.03), or for married members a reduced rate of £545 or €654 per person. Malta fees are coupled to an inflation related annual increase. The STM Gibraltar QROPS has an annual trustee fee of £800 or reduced rate of £535 per person for married members.
The Azure Retirement Benefit Scheme Plus plan charges a £400 or €500 establishment fee and a £400 or €500 annual administration fee. Its Pro plan charges establishment and annual fees of 0.5 per cent.
And there can be further charges depending on the Rops plan and what you do.
Because of this, if you have a small sized pension an expensive Rops may not be worth it. Andrew Tully, technical director at Canada Life, suggests that you should only really consider transferring to a Rops if your pension has a value of at least around £500,000.
Not all Qrops offer the flexible access options that, for example, a UK Sipp might. So it is important to choose a scheme that enables you to do what you need and offers the investments you want to hold, as not all of them provide a wide choice.
If you and or your pension fund are not both in the same territory you could face an overseas transfer charge of 25 per cent of the value of the pension funds transferred. This can make it difficult if you are moving to a country where there are not Rops. For example, at time of writing, there are not any Rops in the US or Middle East and much of Asia, though there are a number in Hong Kong and India, and a very wide choice in Australia.
This applies from the date of transfer to the following 5 April and for five years after that. So even if when you initially move abroad you will be in the same jurisdiction or permitted area as your Rops, consider whether it is likely that within five years you might move to another jurisdiction and incur the overseas transfer charge because there is not a suitable scheme there for you to transfer to.
Until recently, you could reside in a different country to where your Rops is based without having to pay the overseas transfer charge as long as you both were in the UK, European Union, European Economic Area or Gibraltar. So, for example, you could live in Spain and have a Rops in Malta. But legislation introduced on 30 November to help prevent pension scams could mean that having a Rops in a different jurisdiction within these areas will involve more effort.
To make a transfer to an overseas pension you have to have an employment or residency link to it. So if it is not a workplace pension or based in the same country as where you live this will give rise to an ‘amber flag’ under the new legislation. This is likely to mean that your current pension scheme cannot do the transfer until you have taken scam specific guidance from the government’s Money and Pensions Service. However, as the rules are very new pension providers and advisers are still seeking clarification on exactly what this entails for Rops transfers.
It is important to ensure that the scheme you transfer to complies with HMRC requirements. Although HMRC publishes a list of Rops it does not guarantee that these meet its conditions. It states:
“HMRC cannot guarantee these are Rops or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you have to pay tax on any transfer of pension savings. HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that do not meet the Rops requirements even when they appear on this list.”
Also consider how a Rops is taxed in the country to which you are moving and whether it would be the most tax efficient retirement option for you there. For example, Blevins Franks points out that UK pension and Rops income is usually taxable in France at the income tax scale rates there. For 2021, these start at 11 per cent from €10,085 and can be as much as 45 per cent for income over €158,122 per year. Pension income in France can also attract 9.1 per cent social charges unless you hold EU Form S1 or are not affiliated to the French healthcare system.
So Blevins Franks adds: “For French residents, reinvesting pension funds into a suitable assurance-vie – a specialised form of life assurance where the underlying investments attract no tax in France – may be more beneficial than a Rops.”
And in Spain and Portugal, there are also local tax efficient options into which you could transfer a UK pension fund so Blevins Franks says: “Take personalised advice to establish the most suitable approach for you.”