What is ROPs

What is a ROPS?

A ROPS is a Recognised Overseas Pension Scheme – in basic terms, an overseas pension scheme which has permission to receive transferred UK pension funds.

ROPS came about as a result of sweeping pensions tax simplification in the UK, which came in on 6 April 2006. This day is knows as “A-Day” in the UK tax and pensions industry. Pension transfers are regulated in the UK by the HMRC, HM Revenue and Customs – the tax and customs department. Rules that came in from 6th April 2012 tightened up being able to withdraw funds prior to a minimum retirement date of 55.

Essentially, these regulations are designed to ensure that people who no longer live in the UK can only transfer their UK pensions to overseas pension schemes that have similar rules to UK pension schemes.

An overseas (non-UK) pension scheme can apply to become a ROPS if:

  • It is a regulated occupational or personal pension scheme – pension schemes or superannuation schemes are regulated in New Zealand by the Government Actuary,

  • It is open to people who live in the country where it is established – pension schemes in New Zealand are open to residents,

  • The country in which the pension scheme is established does not give tax relief on pension contributions or most of the benefits are subject to taxation – no tax relief is given on contributions to New Zealand Superannuation schemes ,

  • It is registered with the relevant tax authorities in the country where it is established – New Zealand schemes are registered with the Government Actuary and the Inland Revenue Department,

  • It is established in a country with a Double Taxation Agreement with the UK that contains exchange of information and non-discrimination provisions except New Zealand,

  • For New Zealand schemes that are not Kiwi Saver schemes transferred funds must not be available any earlier than they would be in a UK pension scheme (age 55) with a specific requirement to provide at least 70% of the fund as an income for life,

  • If a UK pension is transferred to a New Zealand Kiwi Saver that has ROPS status there is no requirement to provide an income for life from 70% of the fund

  • It will provide required information to the HMRC (on payments out of the scheme, transfers to other schemes etc.) – New Zealand ROPS schemes are obliged to report back to the HMRC any withdrawals of UK pension transfers from a New Zealand scheme if the scheme owner has been a UK tax payer in any of the last complete 5 UK tax years, and 10 years since the transfer was made.

The HMRC maintains a list of ROPS that agree to have their details published on their website, www.hmrc.gov.uk, which it updates twice a month. Any transfer or access to pension benefits that contravenes HMRC regulations will result in tax penalties of up to 55%.

Assets and investments held in an HMRC New Zealand ROPS are treated the same for inheritance tax purposes as assets held in a standard UK pension scheme, and are therefore generally exempt from UK inheritance tax.

A letter was sent out by Her Majesty’s Revenue Customs (HMRC) in the UK to all ROPS schemes in April 2015 asking them to confirm that they still fulfill the requirements to be a Recognised Overseas Pension Scheme (ROPS), the Qualifying word is now dropped. On the forms is a section asking for confirmation that the schemes do not allow any withdrawals prior to age 55 apart from ill health. Kiwi Saver schemes do allow for financial hardship and first home buyers withdrawals before that age.

This means that Kiwi Saver QROPS schemes are no longer able to fulfill the requirements of being a ROPS from 6th April 2015. Any transfers in from UK pension schemes into a scheme that is not a ROPS would be regarded as Unauthorised and subject to a possible tax charge of 55% on the transfer amount. Also any withdrawals prior to age 55 in a ROPS would be reported back to the HMRC and again could be subject to a 55% tax charge. However, if you have been out of the UK for 5 complete tax years I understand that this tax charge would not be applicable. However, as with all things tax, I recommend that you take expert advice. If you don’t have an accountant already, please get in touch if you would like me to recommend one.