An overhaul of Qualifying Recognised Overseas Pension Schemes (QROPS) is on the way that could change the offshore pension landscape for expats.
HM Revenue & Customs (HMRC) has indicated a review is under way of the complicated rules that an offshore pension has to meet to become a QROPS.
The problem for HMRC is keeping tabs on flexible drawdowns.
Under the new pension rules that start from April; 6, 2015, retirement savers can opt to withdraw cash from their pensions as and when they like.
For onshore pension holders this means the first 25% of the lump-sum is tax-free and the balance is taxed at their marginal rate.
Conditions under review
This is not as easy for QROPS pension savers who can transfer their UK pensions offshore and take a tax-free lump sum of up to 30% in many financial jurisdictions.
The balance would then be taxed at the basic rate in the country where they are tax resident – which could be 0%.
Furthermore, onshore taxpayers have to inform other pension providers of their drawdown details within 90 days if they have more than one pension. If they fail to do so, HMRC can inflict fines.
In a short statement included in the latest HMRC pension newsletter, the tax authority confirms the qualifying conditions for a QROPS pension are being reassessed.
“The conditions a scheme has to satisfy if it is to be a QROPS are under consideration in the light of the increased flexibility in taking benefits available to registered pension schemes. Any changes are due to take effect from 6 April 2015,” said the newsletter.
War of words
The cryptic comment was not accompanied by any suggestion about what changes will take place.
Previously, The Treasury and HMRC have confirmed QROPS will be opened to flexible access, but no details have been released.
The statement adds fuel to the war of words raging between some onshore pension providers and their QROPS counterparts.
For instance, Standard Life has commented that flexible access heralds the need for expats to transfer their pensions to a QROPS. The company argues that flexible access puts standard UK pensions on an equal benefits and tax footing with a QROPS.
However, QROPS providers argue that this is a simplistic view and QROPS can offer expats significant other tax and other benefits as they are not subject to the lifetime allowance which limits pension fund sizes to £1.25 million.
