What is a QROPS pension, and what are the risks of this type of scheme?

What is a QROPS pension, and what are the risks of this type of scheme?

by | Feb 15, 2023

As hugely rewarding as France is as a place for Britons to move to and retire – due to factors ranging from its beautiful landscapes to its abundant cultural attractions – if this is a path that you are considering taking, you will also have some decisions to make in relation to your UK pensions.

With pensions consisting of benefits that are built up over a lifetime of working, you will doubtless want to make only the most careful and responsible decisions with yours. That will mean ensuring your arrangements are compliant with the law in France but also accessible and flexible.

Is there a solution out there that makes all those things possible? Well, many UK nationals looking to move to France ask us about the idea of transferring their pension to a Qualified Recognised Overseas Pension Scheme, or QROPS. But would this be a wise decision for you – and what are the other things you should be aware of with this type of scheme?

what is a qrops pension

What is a QROPS?

As mentioned, the acronym QROPS stands for Quality Recognised Overseas Pension Scheme. As the name implies, it is a solution designed for non-UK residents who are looking for a way to move their UK pension out of the UK.

A QROPS pension has been an option for such individuals since 6th April 2006, the scheme having been set up in order to satisfy the European Union (EU) requirements in relation to freedom of capital movement.

What makes QROPS distinctive is that these schemes comply with certain UK His Majesty’s Revenue and Customs (HMRC) criteria, thereby giving holders of UK pensions a tax-free way to transfer their pension, without them having to pay any transfer fees either.

It is possible for any registered overseas pension scheme to apply to be a QROPS, with this process requiring them to agree to put in place UK pension restrictions for the first five years.

HMRC maintains a list of QROPS – albeit not showing every single registered QROPS out there – on the GOV.UK website. At the time of writing, there were not any registered QROPS in France shown on HMRC’s list. Other countries in Europe, such as Germany, seem to have several options, so one might ask why this is the case.

If you speak to the SIPNR, the department of the French tax office dealing with assets for French non-residents of France, the conversation gets interesting. “We do not deem a QROPS qualifying and so do not recognise it as a pension”. I reply that the clue is in the name, i.e. it starts with “Qualifying”!

“Yes, I know, however, that is a UK definition and not a French one and when in France, we decide what constitutes qualifying, as they need to qualify under our rules and not simply those of the UK!”. The problem, they explained, is that a QROPS breaks all the rules of the equivalent in France, that being a PER (Plan d’Epargne Retraite).

The reason Kentingtons got into all this is that we tried to create a QROPS product designed specifically for movers to France. We worked with a company in Malta and the SIPNR. Essentially, we tried to design a QROPS that would be accepted. The two systems were deemed incompatible by the SIPNR, so the project was shelved.

French nationals with a QROPS returning to France are “strongly encouraged” to transfer their QROPS into a PER to avoid any issues. In essence, the French view a QROPS as a pot of money in a trust. This is not a good thing for a French resident and has caused problems. As an example of how much the French tax office hates trusts: a French resident creating a trust is subject to a special tax levy of 60% of the trust value … yikes!

As yourself, this one question, would you take any risk, no matter how minimal it may appear, that the French tax office takes more than half of your pension?

It is no surprise, then, that you cannot get a QROPS in France.

If you are reading this and have a QROPS and have never had any issues with the French tax office, you are probably wondering 1) if this is just plain wrong or 2) why no one has ever raised a question regarding your QROPS. Chances are that you simply declared the QROPS withdrawals as income from a pension and your local tax office has no idea it is a QROPS or simply has not caught up with what it is or what the central tax office thinks of them. It could potentially go unnoticed indefinitely.

There are other issues, such as they are subject to the 25% Overseas Transfer Charge if they are outside of the EU, and it is not clear if this will eventually be extended to the EU, given Brexit.

In summary, the tax treatment is not black and white because there is no actual law attacking the use of QROPS in France; however, as you can see, there are great risks involved. Given the potential issues with QROPS, therefore, we have never recommended them.

There are other solutions, such as an international SIPP. However, even an international SIPP still falls under some UK rules. The plus side is that the French tax office views them as pensions, avoiding any “it is simply a pot of money in a trust” issues.

The other option is to cash in a pension as “uncrystallised fund pension lump sums” (or UFPLS).

Providing they comply with certain key criteria, lump sums can be taxed at a fixed rate of 7.5% after a 10% deduction (CGI 163 bis II), so in effect, the tax is 6.75%.

This is great news for those who would pay tax at 40% or more. However, there needs to be great caution around this option, requiring very careful planning and timing. Moreover, we would never suggest this as an option for final salary pensions.

We have seen people being advised to transfer their pensions into a QROPS first and then surrender it to avoid the initial UK tax taken at source. This, however, is an unnecessary expense, considering, for non-UK residents/taxpayers, the UK tax will be quickly repaid in full. Temporary use of a QROPS is simply more money for the adviser and a greater cost for you.

There is, of course, no catch-all answer to the question of which pension solution would be right for you; much would depend on the particulars of your situation. With this in mind, please don’t hesitate to enquire to our team at Kentingtons if you would appreciate informed, professional advice on this sensitive issue when planning a move from the UK to France.

Get in Touch...

 Disclaimer: The information in the above article concerning taxation is based upon our understanding of the taxation laws and practises in France at the time of writing. These taxation rules are subject to change and as such, Kentingtons cannot be held responsible for any inaccuracies that may occur. The information in this article does not constitute personal advice. Individuals should seek personalised advice in relation to their own situation.

Need French tax, investment and financial advice?

Kentingtons provide expert tax and financial advice to private individuals in France or to those moving from the UK to France.

Contact Kentingtons

The Kentingtons Communi K

Kentingtons Logo

Signup to the The Kentingtons Communi K.  All things related to tax & finance in France.

You have Successfully Subscribed!