I have been approached by a financial adviser regarding the transfer of my UK pension out of the UK. Is the QROPS mechanism legal/safe?

There is always a danger that criticism of Spain's regulatory framework will be misapplied. It is very important to remember that the vast majority of Spanish people and institutions will have no idea what QROPS is all about, and why should they. The letters to look for when considering transferring your UK pension are 'FSA' being the Financial Services Authority in the UK. The vast majority of providers here in Spain servicing the British ex-pat community are subject to little or no regulation and QROPS looks as though it may become the next financial scandal.

Until relatively recently it was very difficult to remove ones pension rights from the UK, which meant that irrespective of where in the world a person had moved, control and associated taxation rules continued to be determined by the UK tax authorities. In April 2006 the rules on transferring UK pensions outside of the UK were considerably relaxed and simplified by the introduction of the Qualifying Recognised Overseas Pension Scheme (QROPS). QROPS are plans based in various countries around the world which have applied for and meet certain UK Inland Revenue rules. The main requirements are that the pension must be located in a country which is in the EEA or has a double taxation treaty with the UK and is a regulated pension scheme in the country or territory where it is established.

The first point of significance is that if, for example, a person has moved to Spain, they may transfer their UK pension rights to any QROPS irrespective of where in the world it is established. The importance of this will be made clear below.

The receiving scheme must undertake to meet certain rules stipulated by the UK Inland Revenue, including not to pay more than 30% of the fund as a lump sum and to provide the UK Inland Revenue with certain information on making payments and the investment of capital within the plan.Where this gets really interesting is that the reporting requirements only apply for five complete tax years after the person has left the UK. So if for example a person had left the UK in 2000 there would be no reporting requirements in respect of a transfer made today.

For those with pensions in payment, in a drawdown plan for instance, it is possible to transfer benefits providing the receiving scheme undertakes to pay the same benefits as the ceding scheme. Given the flexibility of UK drawdown pensions, provided the receiving scheme offers similar levels of flexibility, which some do, transfers are possible.

Where QROPS really start to become attractive for expatriates is that after five years not only do the reporting requirements to the Inland Revenue cease but the primary UK legislation also stipulates that the scheme becomes subject to the laws of the of the country or jurisdiction in which the QROPS is established. Furthermore the UK stipulation that the primary purpose of a pension fund is to produce an income for life if lost. Correspondingly the benefits may be taken under the laws of the country where the QROPS is situated, which may include taking all of the fund as a lump sum.

To summarise and answer the question, QROPS schemes can and do work for many people although my advice is to make sure that the person giving the advice is properly authorised to do so. There is little point in moving the pension fund only to discover that the investment of that fund fails or is subject to extortionate hidden charges. I am happy to put anyone in touch with regulated advisers based in the UK or in Spain who have reputations to protect rather than self interest as their core business.

I hope the above is useful and please feel free to give either myself or Carlos Baos a call on 966-426-185, or send an email to info@white-baos.com if you wish to discuss the above or any issue of either English or Spanish law.

Marc White LL.B. (English Solicitor) C/Diana 19, 2ºD, 03700 Dénia (located at the Glorieta Square end of Marques de Campo)

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