QROPS pensions in Spain

QROPS transfers in Spain

In 2006 the UK government finally gave in to pressure from the EU and started allowing anyone with a UK pension who planned on moving aboad to take that pension with them. This was known as 'A day' in the pensions world and formed part of a much wider reform of UK retirement rules. This is when the acronym QROPS was founded. It stands for 'qualifying recognised overseas pension schemes'. HMRC then published a list of companies and trustees who had declared themselves providers of QROPS pensions in various jurisdictions around the globe. Although not 'approved' by HMRC as such these entities had to comply with certain rules set out in order to remain listed. Rules which broadly followed the UK pension regime. These rules have been tightened and refined over the years since 2006 resulting in a considerably reduced amount of providers as well as many jurisdictions (such as Australia and New Zealand) becoming largely inappropriate. Malta (EU) is now the main country where QROPS providers and trustees are located. It should be noted that the 'Q' is sometimes dropped by government and insitutions and referred to as ROPS but they are one and the same.

So, fast forwarding to 2020 - here are the main points to consider when contemplating a potential transfer of your UK pension.

1) Why Malta as a QROPS jurisdiction?

New rules introduced in the 2017 Finance Bill effectively restricted QROPS transfers to countries within the European Economic Area (EEA) - which of course includes Spain. A transfer where the QROPS trustees are outside of this zone and/or the scheme member resides outside of this zone will likely carry a 25% transfer charge to HMRC. In the past there were QROPS providers in New Zealand, Australia and The Channel Islands among other places. The main locations are now Malta, Gibraltar and the Isle of Man. So why not Spain itself? Simply put, there are no institutions in Spain set up to receive and administer UK pension transfers. Although there were some banks such as Santander previously on the list, in practice they were never used and have now been removed completely. The preferred jurisdiction for residents of Spain has always been Malta. And the reasons for this choice are now stronger than ever following the 2017 rule changes. They are:
a) Malta has a strongly regulated and advanced financial services sector with all the main QROPS providers operating from there.
b) Malta has a dual tax treaty in place with Spain ensuring that tax cannot be paid twice.
c) Malta is inside the EEA so residents of Spain are not subject to the overseas transfer charge.
d) With all UK schemes and QROPS, benefits cannot be taken before age 55 (accept in special circumstances such as severe ill health for example). However, Malta allows flexible access to QROPS pensions post age 55 - meaning you can take as much as you want, when you want it (although one has to be mindful of potential tax implications in Spain).
Gibraltar and The Isle of Man may be alternatives for UK scheme members living in Spain who are younger than 55 but once benefits can be taken they do not offer the same tax efficiency.

2) Why transfer to a QROPS?

• BREXIT proofing. We are seeing evidence that increasing numbers of UK pension providers are forcing members who are living in Spain at retirement benefit age (55) to either buy an annuity (restrictive and poor value in this era of low interest rates) or transfer to a QROPS. Also the rules may be changed for the worse should there be a no-deal Brexit.
• Stop currency risk. You can choose to have your overseas pension in Euros thereby avoiding future fluctuations in the exchange rate. You can also keep it in Sterling or have a mixture of both.
• A QROPS is not liable to UK inheritance tax (even though your estate might be - irrespective of your residency status in Spain) and can show a clear intent to cut ties with the UK - thus reducing the danger of a UK inheritance tax liability upon your death.
• Favourable tax in Spain. Especially if you use a temporary annuity certificate issued by the trustees. This can result in tax as low as 2% to 3% only being payable at draw down.
• Lifetime Allowance. There are no lifetime allowance restrictions with a QROPS. This could save thousands if you have a substantial pension pot approaching or breaching the ever decreasing UK maximum threshold - currently set at €1,073,100. For pensions over the allowance a whopping 25% is payable to the UK government.
• Consolidate all your UK pensions into one, easy to understand pension plan.
  
• Flexible Access - post age 55 take what you want, when you want it. No capped draw down restrictions.
• Divorce and creditor proofing. A UK court can order pension funds to be handed over or shared. This is much harder with a QROPS where the UK court has no jurisdiction.
• A larger lump sum of 30% free from UK tax.
• Using an adviser familiar with the Spanish system combined with a QROPS will make it easier to keep track of tax and regulation changes in your country of residence.