Australia Qualifying Recognised Overseas Pension Scheme (QROPS) savers who have switched money offshore from UK pensions since April 6, 2015 face hefty fines for breaking strict cash transfer rules.
On April 6, the pension age test came into force that bars a UK or QROPS pension from paying out benefits to anyone under 55 years old unless they meet certain ill health criteria.
Most Australia QROPS are also superannuation schemes at home, and these schemes allow retirement savers to access their cash before they reach 55 years old under a much broader range of circumstances, such as financial hardship.
As a result of failing the pension age test, 1,650 QROPS were delisted as breaching the rules by HM Revenue & Customs (HMRC).
Australia now has a single QROPS listed with HMRC as meeting the pension age test.
Tax demands
Any transfers into these schemes between April 6 and June 17, when they were suspended as QROPS are classed as an ‘unauthorised pension withdrawal’ by HMRC.
The penalty for breaking this rule is a minimum 55% tax charge on the value of the money transferred for the retirement saver switching cash offshore.
Other penalties and charges, such as interest on any money outstanding, can also be added to the tax penalty.
Australian lawyers and financial trade bodies have pleaded with HMRC not to impose the fines, but the tax man refuses to grant any amnesty and has started sending out tax demands to retirement savers who have made a transfer to an Australia QROPS in this tax year.
HMRC declines to discuss matters relating to individual QROPS jurisdictions or specific schemes.
Pension age test
The pension age test was introduced to align QROPS pensions with those in the UK when new pension freedoms were introduced.
HMRC wrote to pension regulators and individual schemes around the world pointing out the rule change and asking administrators to confirm their QROPS met the new standard.
So many schemes realised they breached the new rules; HMRC suspended the QROPS list on June 17. When the next was published in July, 3,000 pensions were missing from the list, leaving 665 available worldwide.
Australia hosted around 44% of all the QROPS listed globally before the pension age test rule was applied.
At the same time as the Australia QROPS problems with HMRC, seven other QROPS jurisdictions were delisted.
Everything I have read since April in regard to QROPS has been industry generated and rattles on about what has been fairly clear since April and abundantly clear since June, the effectively unregulated sector has been given a reminder that there are rules to follow. I have found nothing at all in regard to those individuals, like myself, who were expecting to start drawing down at 50 and were told (or not in fact told but had to find out) that they had to cancel their birthday party for another 5 years. Can anyone out there throw some light onto this? What do those people, who thought that their scheme had a legitimate right to begin paying benefits at 50, do for their money?
My concern is slightly different. HMRC was expected to align Qrops with the freedom being given to UK pension schemes. In particular, the flexi access option was expected to be extended to Qrops. HMRC backtracked on comments made pre April 2015, but have suggested that the block on flexi access is of a temporary nature.
However, since that time, no further word seems to have been forthcoming on the subject.
I realise that Malta benefits due to EU membership, albeit limited DTA’s restrict the advantage, for some, of using this location as a Qrops base.
Gibraltar, though, ticks the boxes for most of those interested in setting up a Qrops but, thus far, no indication has been given as to when/whether flexi access will be offered for this location and, if so, what restrictions may be placed on those wishing to take up this option.
Anyone with information on this matter?