Chancellor George Osborne has carried out his promise to toughen Qualifying Recognised Overseas Pension Scheme (QROPS) rules by publishing proposed new legislation and guidance for savers and scheme managers.
The new papers are open for consultation until June 21, 2013 with no set start dates for many of the proposals.
QROPS rules were last revised in April 2012, when more than 300 pensions mainly based in Guernsey, New Zealand and the Isle of Man were delisted by HM Revenue and Customs (HMRC).
Why are QROPS rules under scrutiny again?
The UK government is concerned that managers of delisted QROPS do not have to notify HMRC about what happens to tax-relieved pension contributions in the funds and wants to keep track of the money.
Osborne also wants to make sure QROPS savers in delisted scheme do not have any tax advantages over other retirement savers.
How many pension savers are affected?
Most of the proposed changes are administrative, so do not directly affect QROPS members – in papers issued with the consultation, the Treasury suggests around 10,000 pensions are transferred from UK schemes to QROPS every year
The transfers are by British expats and international workers with UK pension rights.
Do the changes mean QROPS are unsafe investments?
Not at all. The QROPS market has more than 3,000 offshore pensions in 46 countries and the majority follow the rules and are perfectly safe financial products. A few look for loopholes in the rules and are the focus of HMRC attention.
Arranging a QROPS through a regulated and qualified IFA with a track-record of successful pension transfers offshore is the best way to find a reputable QROPS.
What are the rule changes?
Most of the proposed changes clarify the current QROPS framework – they include:
- Delisted QROPS must tell HMRC about financial transactions and transfers involving tax-relieved funds from the UK. The rule covers QROPS delisted from the date the proposed legislation comes in to force and excludes QROPS that are already delisted on that date.
- QROPS for workers in public service working for non-governmental organisations, like the United Nations, are exempt from the benefits test rule that ensures providers offer the same tax benefits to resident and non-resident QROPS investors in the same financial jurisdiction.
- HMRC wants new powers to make requesting information about QROPS from people other than scheme managers and retirement savers easier and without their permission.
- QROPS schemes will have to notify HMRC of their status every five years
