Jason Porter, Director, Blevins Franks, comments on delisted QROPS and the UK tax crackdown on offshore pension transfers:
“One of the more complicated areas of financial advice has always been pensions, particularly where this involves a transfer from a UK to a foreign scheme. The introduction of QROPS (Qualifying Recognised Overseas Pensions Schemes), in 2006 was supposed to simplify this, but nine years later with almost annual changes in legislation, it is a minefield for pension holder and adviser alike.
“Earlier this year we saw the government introduce “pension freedom” to the masses, giving everyone at retirement age complete flexibility in how they utilise their pension capital, including part or complete (taxable) drawdown of the fund. But with a fear this would be exploited overseas, it was immediately withdrawn for holders of QROPS.
“Recently, a legal request letter dated 17 April 2015 (but effective 5 April 2015), to all global QROPS providers from HMRC, asked they satisfy themselves the benefits of their scheme could not be taken before age 55. It is common for many overseas schemes to allow this age limit to be waived in various financial hardship scenarios, which potentially makes them non-qualifying pensions schemes from a UK perspective.”
Expectations were not high
“On this basis, HMRC suspended their list of approved QROP schemes in mid-June. The last suspension in 2012 resulted in 735 schemes being wiped from the list (including the almost complete destruction of Guernsey as a scheme jurisdiction), so expectations were not high. Yesterday the list was reissued, and it certainly takes less time to read than before. Australia, at one time the largest provider of QROP schemes, has gone from 1,600 to 1 qualifying scheme, with the Australian government requesting an explanation from its UK counterpart. Overall the reduction is from 3,800 to 663 qualifying schemes.
“Perhaps of interest to a more narrow group of pensions holders, also in June, the FCA released a policy statement setting out their requirements for future transfers of defined benefit, or ‘safeguarded’ schemes to flexible pensions arrangements (including QROPS), that going forward this would require the input and review of a UK qualified pension specialist. But, in respect of overseas transfers, “…as FCA-authorised advisers are unlikely to know the local tax regime or pension rules, non-UK residents seeking to transfer pension benefits will be likely to need to seek advice from both an FCA-authorised adviser and a local (resident) adviser.”
As the minimum value of pension fund this advice would be required for is only £30,000, much of this value could be swallowed up in fees.
“HMRC have always had an overly cautious approach to the exploitation of the rules to take advantage of more lenient pension arrangements abroad. The almost annual furious and frantic action against what they see as ‘abuses’ of the system through changes in legislation and periodic decimation of qualifying overseas schemes has only served to leave pension holders almost too scared to act, for fear of a 55% tax charge as a result of any rule change or scheme de-listing moving faster than their pension transfer.”
About Blevins Franks
Blevins Franks Financial Management Limited is part of the Blevins Franks Group, international tax and wealth management advisers to UK nationals living in Europe. For more information, go on-line at www.blevinsfranks.com
Blevins Franks is regulated by the UK Financial Conduct Authority.
For more information, go on-line at www.blevinsfranks.com