IF YOU ARE ALREADY LIVING ABROAD AND YOU HAVE UK PENSION FUNDS ROPS MAY BE JUST WHAT YOU ARE LOOKING FOR
What is a ROPS scheme?
Recognised Overseas Pension Schemes (ROPS) is a pension scheme established outside the UK. Providing the scheme meets certain HM Revenue & Customs conditions then individuals with a UK pension living abroad can transfer their funds to a ROP.
Why would I use a ROPS?
You are living and working abroad already and want to consolidate your pension arrangements and continue saving for your retirement, you do not intend to return to the UK.
You are living abroad and have substantial pension savings in the UK. UK pensions are subject to a lifetime allowance. Any pension savings above the lifetime limit will be taxable at a rate of up to 55%.
If you decide to transfer your pension into a ROPS, at the point of transfer its value will be tested against the lifetime allowance – to determine if you need to pay tax. However, any future growth of the pension, once transferred into a ROPS, will no longer be subject to lifetime allowance limits.
Anyone living abroad with savings close to the lifetime allowance can protect future growth and make additional savings free from risk of UK taxation. Even if you subsequently move back to the UK the benefits from a ROPS are not tested against the lifetime allowance.
Potential Risks to Consider
Not all jurisdictions are the same and the regulation of the pension and the pension providers will differ from one country to another.
Taxation of any benefits will be dependent on where the ROPS is based and the country in which you reside
UK pension members can benefit from investor protection if things go wrong. This protection is provided through bodies like the Pension Protection Fund and the Financial Services Compensation Scheme. It is important to be aware of the investor protection available in the chosen jurisdiction and whether there are any rules that govern dispute mediation.
An overseas transfer tax charge of 25% may apply if your circumstances change within five years of transferring UK pension funds, for example if you move back to the UK and your ROPS is not established in an EEA state and is not a relevant employment- related pension scheme.
For most people the additional costs of a ROPS over a UK based pension scheme are hard to justify unless you wish to continue contributing to a pension or your UK based pensions are near the lifetime allowance.