Australian Qualifying Recognised Overseas Pension Scheme (QROPS) providers are pleading with HM Revenue & Customs (HMRC) to grant a tax amnesty to retirement savers after hundreds of pensions were found to be breaking new rules.
HMRC delisted 1,650 Australian QROPS on July 1, 2015, effectively closing the offshore pension market for expats in the country as only one scheme was left open.
Since QROPS first hit the market on April 6, 2006, Australia led the way as the financial centre hosting the most schemes.
On June 1, 2015, Australia QROPS numbered 1,653 and had a global market share of 44% by number of pensions, according to figures published by HMRC.
Broken rules
However, on April 6, 2015, HMRC introduced a new pension age test to align QROPS with the UK’s flexible access pension rules.
The aim was to ensure no one under 55 years old could draw payments or take other benefits from their retirement savings.
Australian superannuation schemes accepting QROPS transfers from the UK failed the new test as they are allowed to pay out to under 55s in cases of serious of financial hardship, which is a breach of British pension rules.
As Australia QROPS now break QROPS rules, providers and regulators in the country fear they could face claims for compensation from thousands of expat retirement savers if HMRC demands the individuals pay tax penalties for illegal cash transfers into the former QROPS.
Plea for leniency
Trade body the Australian Superannuation Funds Association (ASFA) and the Australian government are now compiling a list of suspected illegal transfers.
Meanwhile, they are negotiating with HMRC to request an exemption for transfers up to June 17, when HMRC decided to suspend their QROPS List to remove offending schemes.
A similar exemption has already been granted to New Zealand Kiwisaver QROPS that also fell foul of the new rules.
HMRC has updated the QROPS List page on the UK government web site to explain that investors should ask trustees of QROPS schemes to confirm they understand and comply with HMRC’s rules for offshore pensions before transferring any cash abroad.
If a retirement saver transfers money to a QROPS which subsequently is found to have broken the rules, HMRC will impose a tax penalty of 55% of the value of the transfer plus interest and other charges as the switch is deemed an ‘unauthorised pension withdrawal’.
