QROPS in Switzerland: What UK Expats Need To Know

From 30 October 2024, the Overseas Transfer Charge (OTC) exemption for transfers to EEA and Swiss QROPS has been removed. This means that if you do not live in Switzerland at the time of transfer, you will incur a 25% tax charge on the transferred amount.

This guide explains why QROPS in Switzerland were historically popular, the eligibility criteria, and how recent rule changes impact UK pension transfers to Switzerland. We also explore alternative pension solutions that may be more suitable depending on your residency status.

Is QROPS in Switzerland Still a Viable Option for UK Expats?

Switzerland was historically a popular destination for UK expats transferring their pensions to a QROPS due to its stable financial system, tax efficiency, and flexible pension management. It allowed retirees to hold and withdraw their pension in Swiss francs, reducing exchange rate risks and currency conversion costs.

Additionally, transferring a UK pension to a Swiss QROPS previously provided inheritance tax (IHT) advantages, ensuring that beneficiaries could receive the full pension pot without exposure to UK IHT, which applies at 40% on estates exceeding £325,000.

However, recent rule changes have significantly reduced the viability of Swiss QROPS for many UK expats.

From 30 October 2024, the UK government has removed the Overseas Transfer Charge (OTC) exemption for EEA and Swiss QROPS transfers, meaning that individuals who do not reside in Switzerland at the time of transfer will now incur a 25% tax charge on the transferred amount.

As a result, unless you are a Swiss tax resident, transferring a UK pension to a Swiss QROPS is no longer a tax-efficient option.

For expats living elsewhere, alternative solutions such as an International SIPP may be more suitable for retirement and tax planning.

What Are the Tax Implications of Transferring a UK Pension to a QROPS in Switzerland?

If you decide to transfer your pension from the UK to a QROPS in Switzerland, you may be liable for an overseas transfer charge (OTC).

As of 30 October 2024, the UK government has removed the Overseas Transfer Charge (OTC) exemption for transfers to QROPS in Switzerland. This means that a 25% tax charge will apply on the transferred amount unless:

• You are a Swiss tax resident at the time of transfer.
• Your Swiss QROPS is provided by your employer.

Additionally, the Overseas Transfer Allowance (OTA) is set at £1,073,100. Any pension transfer amount that exceeds this threshold will be subject to a 25% tax charge on the excess sum, regardless of residency status.

To ensure full compliance and efficient tax planning, it is advisable to consult a specialist pension transfer adviser who can assess your circumstances and explore alternative retirement solutions where applicable.

How Are Your QROPS Withdrawals Taxed in Switzerland?

From the age of 55, QROPS holders in Switzerland can withdraw a portion of their pension tax-free under the Lump Sum Allowance (LSA), currently capped at £268,275 (25% of the pension pot).

For retirees who remain in Switzerland, withdrawals beyond this amount are subject to Swiss income tax, which consists of:

• Federal income tax: The maximum federal tax rate is 11.5% for income exceeding CHF 928,600.
• Cantonal and communal tax rates: These vary significantly depending on the canton of residence. When combined with federal tax, the total personal income tax (PIT) ranges from 22.1% to 45.5%.

Switzerland’s tax system operates on a progressive basis, similar to the UK’s marginal income tax structure, where tax rates increase with income levels.

Tax-Efficient Planning for Swiss QROPS Holders

Given the variability in cantonal tax rates, retirees may opt to reside in a lower-tax canton to minimise their overall tax liability. For example, canton Zug has one of the lowest combined tax rates at 22.2%, making it a preferred location for tax-efficient retirement planning.

Which QROPS Plans Does Switzerland Offer?

The Swiss pension system operates under a three pillar structure:

1. State Pension: Funded by the Swiss government and based on contributions.
2. Occupational Pension: A mandatory scheme funded by both employers and employees.
3. Private Pension: Voluntary, individual pension savings to supplement retirement income.

For UK expats seeking to transfer their UK pension to a QROPS in Switzerland, there are currently two HMRC-recognised QROPS options:

These are the only Swiss pension schemes currently listed on the official HMRC QROPS list. This is due to the stringent framework set by HMRC, which outlines the qualifying criteria for a pension scheme to obtain QROPS status.

One of the key requirements is that pension benefits cannot be withdrawn before the age of 55, ensuring alignment with UK pension regulations and preventing early withdrawals that could undermine long-term retirement planning.

How Does Independent Vested Benefits Foundation QROPS Work?

The Independent Vested Benefits Foundation facilitates UK pension transfers to Switzerland, offering a structured approach to pension preservation and financial planning. Transfers may be conducted tax-free, subject to compliance with HMRC and Swiss regulatory requirements.

To qualify for this QROPS in Switzerland, you must:

• Be at least 55 when you transfer the pension.
• Be a permanent resident outside of the UK.
• Be domiciled in Switzerland at the time of transfer (essential for avoiding the 25% OTC from October 2024).
• Have a pension asset sum of at least CHF 100,000.
• Not withdraw pension for 10 full, consecutive fiscal years after leaving the UK.

The plan provides comprehensive coverage for disability and death benefits, applicable both within Switzerland and internationally. There is a 24-month waiting period for a disability pension, and policyholders can opt for disability pensions or lump sum death benefits, either separately or in combination.

In addition to insurance coverage, the Independent Vested Benefits Foundation offers several tax benefits, including:

• No wealth or income tax on vested benefits while invested.
• Favourable tax rates on withdrawals, subject to Swiss cantonal tax regulations.
• Reduced withholding tax if you leave Switzerland permanently.
• Lower one-off taxation on retirement capital withdrawals.
• Currency risk mitigation, allowing funds to be taken in Swiss francs.

Transferring a UK pension to the Independent Vested Benefits Foundation incurs a one-time advisory and processing fee of 1% of the transferred amount.

Given the recent regulatory changes, individuals who are not Swiss residents at the time of transfer may be subject to a 25% OTC, making it essential to review alternative pension solutions where necessary.

How Does the CERN Pension Fund Work?

The CERN Pension Fund is an occupational pension scheme designed exclusively for eligible employees of the European Organization for Nuclear Research (CERN).

This fund provides financial security during retirement and offers disability and death benefits for its members and their beneficiaries.

The CERN Pension Fund is a restricted occupational pension scheme, available exclusively to CERN employees and not open to the general public.

Non-members seeking a QROPS transfer must consider alternative options, such as the Independent Vested Benefits Foundation, as the CERN Pension Fund does not accept external transfers.

Eligible CERN employees have the option to purchase additional pension service years to enhance their benefits. This can be achieved by:

1. Transferring a UK pension into the CERN fund at any time during employment or,
2. Buying additional membership years with personal funds, provided they have completed at least five years of CERN service.

Additionally, individuals who previously contributed to an employer-funded private pension scheme may request approval from the CERN Pension Fund to transfer their pension, subject to eligibility requirements.

The cost of transferring a pension into the CERN Pension Fund is determined by two primary factors.

The individual’s reference salary at the time of transfer and their age, which influences the cost of purchasing additional service years.

Navigating QROPS transfers requires careful planning to ensure compliance with regulations, tax efficiency, and alignment with long-term retirement objectives. Consulting a specialist pension transfer adviser can help determine the most suitable pension strategy based on your residency, tax position, and financial goals.

At Titan Wealth International, our experts provide comprehensive QROPS advice, assisting with pension restructuring, evaluating alternative retirement solutions, and identifying opportunities to reduce tax liability while potentially maximising pension growth.

How To Transfer a UK Pension to a QROPS in Switzerland

If you’re not a CERN employee and want to transfer your UK pension to a Swiss Independent Vested Benefits Foundation, the steps you should take are:

1. Speak to your pension transfer adviser: Consulting a pension transfer expert will help you ensure you qualify for the transfer and confirm your chosen QROPS fits your needs in terms of benefits, taxation, and investment options.
2. Consult your current pension provider: Speak to your pension provider in the UK to check if the transfer is possible. If so, you must fill out and submit “transfer out” forms to initiate the transfer process.
3. Contact the scheme provider: Contact Independent Vested Benefits Foundation to confirm they’ll accept your pension transfer.
4. Complete Form APSS263: Complete this form and submit it to your UK pension provider to finish the process.

How To Transfer Your Pension to the CERN Pension Fund

The process is similar if you want to transfer your UK pension to the CERN pension fund. However, for this transfer, you need to:

1. Contact your current pension provider to see if they allow transfers to the CERN pension fund.
2. Submit a breakdown of your current pension scheme to the CERN fund’s benefits service to get a document with simulations of your benefits upon transfer.
3. Request approval from the CERN fund if you wish to proceed.

Once the request is approved, you’ll receive the bank account details from the fund’s benefits service and receive a payment within six months of the approval date.

What Are the Benefits of Holding a  QROPS in Switzerland?

Transferring a UK pension to a Swiss QROPS can provide several financial and tax advantages, for individuals who are Swiss tax residents. Key benefits include:

1. Potential Favourable Tax Treatment: Swiss QROPS holders may benefit from preferential tax rates on withdrawals. However, while QROPS have historically provided exemptions from UK inheritance tax (IHT), recent UK tax proposals suggest that, from April 2027, offshore pensions—including QROPS—could be included in the UK IHT net for individuals who have been long-term UK tax residents. Seeking specialist advice is crucial to ensure tax-efficient estate planning.
2. Pension Commencement Lump Sum (PCLS): Swiss QROPS holders may withdraw up to 30% of their pension fund tax-free, subject to a maximum limit of £1,073,100. Any amount exceeding this threshold is subject to Swiss income tax, with rates varying based on the canton of residence.
3. Lump Sum and Death Benefit Allowance: Under current UK rules, beneficiaries can inherit up to £1,073,100 tax-free when you die. However, from April 2027, the UK government has proposed changes that may bring QROPS back into the UK IHT net for long-term UK tax residents. This means that even offshore pensions may become subject to UK inheritance tax in certain cases. Additionally, Swiss tax treatment on death varies by canton. Some cantons exempt direct heirs from inheritance tax, while others impose inheritance or income tax on pension withdrawals. If the pension is taken as a lump sum, it may be subject to Swiss lump-sum taxation, while funds left in drawdown are typically taxed as income at cantonal tax rates.
4. Currency Flexibility: Holding a pension in Swiss francs can mitigate exchange rate risks, offering greater stability for long-term financial planning.

Optimise Your Pension with a QROPS Review

If you live in Switzerland and have a QROPS outside of Switzerland, or you’re planning to move to Switzerland and want to understand your UK pension options, recent rule changes may affect your financial planning.

At Titan Wealth International, our QROPS specialists will assess your pension structure, tax exposure, and retirement strategy. We help you determine if your existing QROPS remains suitable or if alternative solutions, such as an International SIPP, offer a more tax-efficient approach.

What’s Included in Your Complimentary Review?

• QROPS Suitability Assessment – Review your current QROPS and whether it still aligns with your retirement goals.
• Tax Impact Analysis – Understand the Overseas Transfer Charge (OTC) and potential Swiss tax liabilities.
• Alternative Pension Strategies – Explore International SIPPs and other tax-efficient retirement options.

With new regulations in place, making an informed decision is crucial to avoid unnecessary tax penalties.