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UK Moves Towards Pension Flexibility - But QROPS Still The Expat Choice

By Stephen Ward BA (Econ), ACII, APMI, APFS, AIFP - Sun 6th Feb 2011

The greater flexibility offered to UK expats following a transfer to a QROPS are reasonably well understood. Namely:

Less taxation - as low as 1.5% on income for Spanish resident expats

Higher lump sums - up to 100 % can be possible

More investment flexibility

No requirement to buy an annuity

A fund which can be passed on to the next generation.

Whilst the coalition government are certainly wasting no time in looking at greater flexibility for those who keep their UK pension fund under UK rules for the expat QROPS still win out every time.

Taking each of the points listed above in turn:


Many expats choose out of inertia to pay tax on their pension in the UK - often up to 40%. Structured correctly, the taxation basis of income in Spain from a QROPS will typically be between 1.5% and 2.5%.

Lump sums

It will be soon be possible to take much higher lump sums from a UK pension fund. However, to do so it will be necessary to have a secure income (State pension and annuity) of at least 20,000 p.a. and the higher lump sum will be taxed as income. The UK government are also considering accessibility to lump sums before the age of 55. One example given is through distributions on the grounds of hardship.

Compare this to a QROPS where the long term expat is already able to access a lump sum of up to 100% of the fund, free from UK tax.

Investment flexibility

There are no proposals to change the existing UK restrictions. However, for long term expats the flexibility to transfer through a QROPS to a structure with pretty much complete investment freedom is available. Our favoured vehicle to achieve the greatest investment flexibility for those who need it is a New Zealand Foreign Trust.


The UK is about to (allegedly) abolish the effective compulsion to buy an annuity. However, it will remain the case that the remaining fund following death will be subject to taxation at 55%. Transferring to a QROPS means that following death the remaining fund can be distributed completely free from tax.

Passing the fund on after death

UK pension laws allow the remaining fund on death to be passed down the line for each 100 of fund. However, unless death occurs before benefit has been taken, the beneficiaries will only receive 45 for each 100 of fund. (The exception to this is if the remaining funds have been left to charity.) Within a QROPS then the entire fund is available to be passed on - no UK tax is deducted.

So the UK is looking at introducing more flexibility which of course is a welcome development. All the same the expat can achieve a much greater degree of flexibility and tax efficiency through a transfer to a QROPS. It really is a no brainer in nearly every case we are asked to advise on.

If you have any questions or comments regarding your pension please feel free to either post them (below) or contact us directly by clicking on the link to our page (above).

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