New Qualifying Recognised Overseas Pension Scheme (QROPS) draft legislation has overhauled the rules for offshore pensions, bringing them into line with flexible access rules for UK pensions.
The problem was QROPS rules dictated that providers had to ring fence 70% of the fund to provide a lifetime income for the retirement saver.
This requirement meant that the flexible access rules in the UK allowing retirement savers to drawdown their funds and spend them as they like could not apply to QROPS.
To work around the problem, HM Revenue & Customs (HMRC) has drafted new QROPS legislation that scraps the 70% rule and opens the way for flexible access.
The changes
The new law also introduces two more key changes for QROPS:
- Unless a QROPS is based in the European Economic Area, the scheme can only become a QROPS if the provider is regulated in the country where they are trading
- Providers have to guarantee pension benefits will not be paid to anyone aged under 55 years old. If they do not, the scheme cannot accept pension-relieved contributions from the UK.
The second measure seems to be aimed at limiting pension liberation firms offering early access to pension funds for savers under 55 years old.
The provisions of the new draft rules also require that providers must pass tax and financial information about UK taxpayers and QROPS investors to HMRC under a double taxation treaty or some other tax agreement.
This effectively outlaws setting up QROPS in countries without tax information swapping agreements with the UK.
Cash limits
The draft legislation also limits cash contributions to a QROPS in flexible drawdown to £10,000 a year, in line with the proposed UK rules.
Chancellor George Osborne and HMRC announced some months ago that the flexible drawdown option for pension investors would be extended to QROPS, but delayed issuing the details due to the technical issues involved.
The latest HMRC QROPS List shows more than 3,600 pensions are available in 45 different financial jurisdictions worldwide.
For more than a year, QROPS have opened at a rate of one a day. HMRC has issued figures suggesting more than 10,000 expats and international workers transfer cash from onshore UK pensions to a QROPS every year.
However, to date, no figures are available on how much this amounts to in terms of cash.
