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QROPS — what is it and why do I want to know about it?

A transfer of pension benefits from the UK to an overseas superannuation fund will be tax free only if the overseas superannuation fund is considered to be a 'Qualifying Recognised Overseas Pension Scheme' (QROPS). This article provides some general information on the recent changes to the UK pension laws in respect of QROPS and the possible impacts on members of Australian superannuation funds. Kate Latta, Maddocks Lawyers

What is a ROPS and a QROPS?

An overseas pension scheme is a 'Recognised Overseas Pension Scheme' (ROPS) if it meets the relevant UK legislation requirements which broadly require the overseas pension scheme to meet the same requirements which would apply to an equivalent UK pension scheme.

QROPS are those overseas pension schemes which have been published on the UK government (more specifically Her Majesty Revenue and Customs (HMRC)) website as they have:

  • notified HMRC that they are a ROPS;
  • made certain commitments with regard to reporting matters to HMRC (specific reporting requirements range from a period of 5 years after a person leaves UK residency and 10 years after a person makes a transfer of benefits from the UK);
  • been issued with a reference number from HMRC; and
  • requested publication on HMRC's website.

The list does not show that the pension scheme meets the ROPS requirements. It is each person's own responsibility to satisfy themselves that the overseas receiving entity is a QROPS.

Why is it important?

Under UK laws, a transfer from a UK pension scheme to a QROPS can be made tax-free. Where the transfer from a UK pension scheme is made to an overseas pension scheme which is not a QROPS, UK tax charges will arise which are usually applied at a rate of 55% on an individual and 15% on a scheme administrator.

Before 6 April 2015, 1660 Australian superannuation funds were listed as QROPS.

Changes to UK pension laws

On 6 April 2015 changes were introduced which affected the UK pension laws, including the introduction of the UK 'Pension Age Test'. The UK 'Pension Age Test' requires that any funds transferred from a UK pension scheme to an overseas pension scheme cannot be paid to that member of an overseas pension scheme until at least age 55, unless the member is retiring due to ill health.

Currently, Australian law does not satisfy the 'Pension Age Test', as funds may be released to members of a superannuation fund before the age of 55 in certain circumstances, such as severe financial hardship, compassionate grounds or to comply with an ATO-issued release authority relating to excess contributions.

After 6 April 2015, the number of Australian superannuation funds which were listed as a QROPS reduced to one. The other 1559 Australian superannuation funds automatically ceased to be a QROPS on and from that date without, in most instances, even being aware of the change at the time.

As a result, transfers made from a UK pension fund to an Australian superannuation fund after 6 April are likely to be at risk of UK tax charges.

Current status of QROPS

Since 6 April 2015, there has been various correspondence from the HMRC to Australian superannuation funds which were previously registered as a QROPS, noting that they ceased to be a QROPS on and from 6 April 2015 and seeking that they demonstrate how their superannuation fund complies with the amended UK pension laws, including the 'Pension Age Test'. The questions asked, and the notes to the letters, suggested that it was possible to amend the trust deed to ensure compliance.

There are currently 5 Australian superannuation funds now listed by HMRC as QROPS. It appears that HMRC has to date, only accepted Australian superannuation funds as QROPS where the membership of those funds is restricted to members over the age of 55. It remains to be seen whether the HMRC will publish any formal guidance about what changes to an SMSF deed will satisfy HMRC's requirements.

The Cleardcos SMSF trust deed has been drafted broadly and generally and to comply with the requirements of Australian superannuation and tax laws. It is not intended to cater for specific circumstances, such as the transfer of overseas pension funds to a member of an Australian superannuation fund in accordance with foreign laws.

Australian SMSF trustees may be able to take steps to ensure their SMSFs are ROPS before taking steps for them to become QROPS. SMSF trustees will need to seek UK legal and financial advice on what steps are necessary.

Legal advice

This article is not intended to provide legal advice. If you are concerned that you have made, or you are looking to make, a transfer from a UK pension fund to an Australian superannuation fund you should seek independent legal or financial advice.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the superannuation team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of matters.

Order Cleardocs SMSF packages


Lawyer in Profile

Leigh Baring
Leigh Baring
+61 3 9258 3673

Qualifications: LLB (Hons), BEc (Hons), Monash University

Leigh is a Partner in Maddocks Tax and Structuring team. Leigh has extensive experience in advising Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.

Leigh regularly provides advice on:

  • structuring of businesses and transactions,
  • mergers and acquisitions,
  • corporate reorganisations and distributions,
  • sale of businesses,
  • demergers,
  • capital raisings,
  • joint ventures and property developments,
  • international tax (both inbound and outbound), and
  • succession planning and liquidations.

His advice covers both direct and indirect tax considerations.

Throughout his career, Leigh has been at the forefront in developing tax-effective corporate, trust and superannuation structures.

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