QROPS, short for Qualifying Recognised Overseas Pension Schemes are specialist, tax-effective offshore pensions for Non-Resident Indians with British pensions.
Non Resident Indians (NRIs) are a huge influential group of more than 20 million people spread across 110 countries remitting US$60 billion to India from overseas, according to the latest official statistics from India.
At some time, hundreds of thousands of these NRIs work in Britain and invest in a workplace or private pension.
Many NRIs may work in the UK, leave for another country or return to India, leaving their pension savings behind them.
With a QROPS, NRIs can transfer these UK pension funds to an offshore provider who offers enhanced pension benefits, a wider range of flexible investments and often, a larger cash lump sum on retirement.
How QROPS work for NRIs
The QROPS funds are then accessible in India or any other country outside the UK where the NRI decides to retire.
QROPS advisers favour two QROPS financial centres for NRIs, but the final choice of locating a QROPS will come down to an individual’s personal financial circumstances.
For instance, tax complications mean NRIs retiring to the USA would probably transfer their UK pension to a Malta QROPS, whereas a resident and ordinarily resident Indians (ROR) might consider a Gibraltar QROPS a better option.
Here’s how the pros and cons of Malta and Gibraltar QROPS break down:
- Malta – Malta has a double taxation agreement (DTA) with India, but Malta has tax rights over pension payments. Malta can withhold up to 35% of any payment, but the income would not be retaxed in India. Malta QROPS are one of the most popular jurisdiction for overseas UK pension transfers
- Gibraltar – India and Gibraltar have no DTA, so Gibraltar will deduct 2.5% tax and then the payment is taxed in India if the member is ROR or remits the income. Gibraltar tax can be set off against tax paid in India.
As income tax rates are lower in India than Malta, a Gibraltar QROPS may be more tax-effective for someone who is ROR.
QROPS and tax
Tax is not the only issue for NRIs to consider when switching to a QROPS.
Most QROPS will offer flexible investments across a wider range of commodities, markets and currencies that can accelerate fund growth, which is tax-free.
QROPS are also outside of the scope of the UK for inheritance tax on unused funds, providing the beneficiaries do not live in Britain.
Specific QROPS might also offer flexible withdrawals, payments in rupees or other major currencies, depending on where in the world the NRI has settled.