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Life for expats from the UK could now be even better thanks to a pension scheme that was put in place by the British government some three years ago. But despite the fact that QROPS – as it is known – has been around for quite some time it would appear that not everybody is in the know!

QROPS (Qualifying Recognised Overseas Pension Plans) was launched in April 2006 by the British government as a way to make expatriate retirement easier for Britons. It effectively allows Brits to retire abroad while taking their pensions with them.

Upon QROPS launch in 2006 it was greeted with headlines touting the fact that well-to-do British expats would be able to enjoy tax free retirement abroad. However, despite the press publicity it appears that not everybody paid attention and not everybody knows about the policy – and those that do could probably also do with a reminder in case they are not yet taking advantage of the scheme.

Prior to 2006 as a British expat it used to be that, when moving overseas, you would have to leave your UK pension behind. It would remain ‘trapped’ and almost impossible to move to an overseas or offshore pension scheme without paying a basic tax on the transfer. With QROPS that has all changed.

Now with QROPS non UK-residents can transfer their UK pensions to an overseas pension scheme without having to pay tax on the transfer. They can also draw their pensions without having to worry about having to pay tax back home in the United Kingdom. In addition, instead of their wives or children getting a portion or none of the pension in the case of death, now all assets can be transferred to their beneficiaries.

However, to take advantage of QROPS there are certain conditions that have to be met. The overseas scheme to which the UK pension is transferred must be one that is recognized by Her Majesty’s Revenue and Customs Office (HMRC). The scheme also has to be in an approved country.

The amount that is transferred also has to remain in the scheme for at least 5 years before it can be used. In addition it also has to be proved that 70 per cent of the scheme is to be used for retirement. In some countries you do not have to declare what you are using the fund for after the 5 year period. This means that you can take the whole pension as a lump sum.

However, transfers to schemes that are not approved by HMRC could result in a tax penalty of between 40 to 55 per cent.

At present the list of approved locales that offer such pension schemes include the following – Isle of Man, Guernsey, Jersey, Switzerland, Australia and New Zealand. There are currently about 1700 QROPS schemes to choose from.

So, if you’re one of the millions of Britons living abroad (there are an estimated 3 million British-born people living overseas) and one of many British expatriates living in Cambodia perhaps you should look in to taking advantage of QROPS. After all some of the benefits of QROPS can be summarized as follows –

• No Inheritance Tax
• All of your pension passes to your beneficiary in full
• Removes the need to buy an annuity
• Reduces amount of income tax, in some cases to zero
• Offers access to lump sum after 5 years

If you are a British expat and you are interested you should seek the advice of a personal finance expert to help you to choose which scheme is right for you. After all there are thousands of schemes to choose from and you want to make sure that you choose the right one for you and your lifestyle.

Trevor Keidan wrote this post.

Trevor is Infinity's Managing Director of the Infinity Financial Solutions Group

View Trevor Keidan's profile page.