beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Pensions Tax Manual

Transfers: transfers to a registered pension scheme from a QROPS or former QROPS

Pension funds held under a qualifying recognised overseas pension scheme (QROPS) or former QROPS may be transferred to another pension scheme, including back to a registered pension scheme.

A transfer from a QROPS or former QROPS is not a contribution to the registered pension scheme; it is merely the relocating of pension rights from one scheme to another.

Transfers of benefits in payment

Paragraphs 1 to 7 Schedule 34 Finance Act 2004

Regulations 3 and 12 the Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 – SI 2006/499

The Relevant Overseas Schemes (Transfer of Sums and Assets) Regulations 2018 – SI 2018/372

Under the Schedule 34 Finance Act 2004 provisions for the member payment charges a payment from a QROPS (or former QROPS) that if made from a registered pension scheme would be an unauthorised payment may be taxed as an unauthorised payment. 

What this means for a transfer is, to avoid being treated as an unauthorised payment, extra conditions apply to the transfer if part or all of the transfer represents a pension in payment.  The relevant guidance is at:

After the transfer of sums and asset representing a scheme pension or drawdown pension under a QROPS (or former QROPS) to a registered pension scheme, the new pension under the registered pension scheme is treated as if it were the original pension under the (former) QROPS for the purposes shown below. 

This means:

  • A pension commencement lump sum cannot be paid in connection with the provision of the replacement scheme pension or designation to create the replacement drawdown pension.
  • Where the form of drawdown under the (former) QROPS is the equivalent of capped drawdown (see PTM062520) the new pension under the registered pension scheme will also be capped drawdown.  If a member wants to take advantage of flexible pensions they will need to convert the capped drawdown pension fund into flexi-access drawdown – see PTM062750.
  • In deciding whether or not a reduction in scheme pension creates an unauthorised payment the rate of original scheme pension under the (former) QROPS is used.  The rate of scheme pension under the registered pension scheme should be the same as that under the (former) QROPS.  In making this, test reasonable administrative costs for making the transfer may be deducted.
  • If the scheme pension under the (former) QROPS has a guarantee period, this period cannot be extended.  Any period of guaranteed pension payment must end on or before the expiry date of the guarantee period (if any) under the original scheme pension.
  • The maximum pension protection lump sum death benefit (see PTM073300) or annuity protection lump sum death benefit (see PTM073400) will be calculated by reference to the amount crystallised by the original scheme pension and the amount of scheme pension payments made under both the original and new scheme pensions.

Note that this ‘new for old’ treatment does not extend to benefit crystallisation events.  When the member becomes entitled to the replacement scheme pension under the registered pension scheme a BCE 2 occurs (unless the member is age 75 or older).  Similarly when the designation to create a replacement drawdown pension occurs where the member is aged under 75 this is a BCE 1.

Transfers and the lifetime allowance

Section 224 Finance Act 2004

Where the transfer is made from a QROPS, or a former QROPS that is still a recognised overseas pension scheme, the member may be able to claim an enhanced lifetime allowance factor calculated as:

(Sums and assets transferred – Relevant relievable amount)/Standard lifetime allowance

This enhancement factor can be used to mitigate the impact of any BCE 8 that occurred when the member transferred from the original registered pension scheme to the QROPS.

See PTM095410 for details of how to calculate and claim this enhancement factor.

Example

Fred transferred to a QROPS using up 80% of the standard lifetime allowance.  He later chooses to transfer funds from the QROPS to a registered pension scheme.  The amount of the transfer is £900,000 and the standard lifetime allowance (SLA) is £1 million.  Fred did not accrue new benefits under the QROPS so there is no relevant relievable amount.

Fred can claim an enhancement factor of 0.9, calculated as:

(£900,000 - £0)/£1 million = 0.9 

This gives Fred a lifetime allowance of 1.9 x the standard lifetime allowance.

Fred’s funds under the registered pension scheme grow and he crystallises £1.2 million when the standard lifetime allowance is £1.05 million. 

Immediately before the crystallisation Fred’s available lifetime allowance is £1,155,000, calculated as:

enhanced lifetime allowance – lifetime allowance used up by previous BCE 8

£1,995,000 (1.9 x £1.05 million SLA) - £840,000 (80% £1.05 million SLA) = £1,155,000

The lifetime allowance charge is due on £45,000, being the excess of the £1,200,000 crystallised over Fred’s £1,155,000 available lifetime allowance.

There is no entitlement to an enhanced lifetime allowance factor if the transfer is from a former QROPS that is not a recognised overseas pension scheme (ROPS).  So if a member who, having transferred to a QROPS, chooses to transfer funds back to a registered pension scheme after the scheme has lost QROPS status because it is not a ROPS, they will have their funds effectively double counted for lifetime allowance purposes.  The member will use up lifetime allowance on the BCE 8 that occurred on the transfer to the QROPS and again when they crystallise benefits under the registered pension scheme.