I won’t blame you if you are baffled by yet another acronym, but QNUPS could be worth your attention.
QNUPS are Qualifying Non-UK Pension Schemes. If you think that sounds rather similar to QROPS – Qualifying Recognized Overseas Pension Schemes, which we have discussed extensively you are right! The two were created in the same piece of legislation back in 2004. But QNUPS were only regulated six years later and so are less well-known.
What is QNUPS designed for?
Think of the QNUPS as a less strict version of the QROPS. As in the case of QROPS, QNUPS must have some rules that are similar to UK pensions, such as the minimum retirement age, and must be open to the local population of the jurisdiction rather than only to overseas investors.
It also has similar benefits, such as not being liable for inheritance tax.
But, differently from QROPS, they don’t need to register with Her Majesty’s Revenue and Customs, comply with HMRC reporting and administration requirements or guarantee to HMRC that the payments made to pensioners are similar to those of UK pension plans.
That means that QNUPS are more flexible than UK Pensions or even QROPS. QNUPS can invest in a very broad range of assets: they can buy residential property or even antiques, and make loans to their members, for instance. Contributions can also extend beyond the age of 75.
What is QNUPS not designed for? What are common pitfalls?
Two important points:
- You can’t transfer your UK Pension to them (without incurring heavy penalties) as you can with QROPS. This is because QNUPS aren’t considered to be sufficiently comparable to UK pensions by HMRC.
- Contributions aren’t subject to tax-relief, unlike UK pensions (from which QROPS are usually transferred in the first place).
So this is strictly a vehicle for those with retirement savings in addition to their UK pension or who are looking to carry out inheritance planning. Examples:
- John works in Hong Kong. He didn’t give much thought to retirement planning when he was young – he didn’t even have a UK pension – so he had to postpone his retirement. But he is now approaching it at the age of 75. He is still domiciled in the UK (and might want to return at some point), which means that he would be liable for inheritance tax on his estate upon death. He has 4 children – 2 from a second marriage who are still quite young, and wants to leave them an inheritance. A QNUPS is ideal for him – it would allow him to enjoy flexible investment alternatives and protect his estate from inheritance tax should he pass away.
- Mary is a successful banker working in Singapore. She has a UK pension plan to which she contributes up to the tax-relief cap of GBP 55,000 per year to make the best of that benefit. And yes, she does plan to transfer that to a QROPS when she retires in order to benefit from lower taxes. But unlike John she is very conservative in her retirement planning and she would also like to save even more to ensure she can maintain her high standards of living upon retirement. And, naturally, she wants to do so in the most tax-efficient manner. So she contributes her savings above the UK cap to a QNUPS.
It is important to point out that a decision to contribute to a QNUPS made only in order to avoid inheritance tax could be contested by HMRC. In practice though, that is hard to determine, and contributions of reasonable size made at reasonable points in time (e.g. rather than on one’s deathbed) can be justified.
We hope to have answered your question of what is a QNUPS, and shown how it can be a useful additional retirement and inheritance planning vehicle. Financial planning can be tricky, and it is often a good idea to consult a specialist who can guide you through the right acronyms to find the ideal arrangement for your personal situation.