Qualifying Recognised Overseas Pension Scheme (QROPS) retirement savers suddenly finding their offshore scheme allegedly breaks pension rules have a right to ask what is going on at HM Revenue & Customs (HMRC).
Thousands of QROPS were delisted in July 2015 for failing the pension age test introduced on April 6, 2015.
The HMRC QROPS List had 3,702 overseas pensions included on June 1, 2015.
By July 1, 2015, this was whittled down to 665 by HMRC.
The biggest casualty was Australia, losing 1,652 QROPS in a month and reducing the market to one scheme. Other losers were The Netherlands (116 to 31), Ireland (787 to 55), Jersey (140 to 73) and Switzerland (137 to 1).
Pension age test
This test barred any overseas pension paying benefits to anyone under the age of 55 from qualifying as a QROPS.
The delisted schemes in Australia and New Zealand, for instance, paid benefits to under 55s who needed the cash to alleviate financial hardship, which is not allowed under UK pension rules.
However, QROPS have always been subject to UK pension rules and the minimum retirement age was set at 55 years old in April 2010.
The argument follows that many of the QROPS that failed the new test were accepting transfers from UK pensions before April 6, 2015, so were already in default of the rules.
Nevertheless, neither HMRC nor the managers of UK pension funds noticed or turned a blind eye.
Enforcing the rules
UK pension fund managers have an obligation under QROPS rules to check that the scheme they are transferring funds to meets QROPS standards before sending them overseas. If they do not, they could face a tax penalty of at least 15% of the value of the transferred fund.
Pension lawyers Wedlake Bell argue that HMRC spotted the retirement age anomaly in many QROPS schemes earlier this year and decided to revamp the pension age test in stronger terms to help enforce compliance.
“Enforcing the test removed the argument that many QROPS had always been in default of the minimum retirement age rule,” said a spokesman for the firm.
“This allowed HMRC to overhaul the list and remove thousands of schemes. HMRC also warned pension administrators that trouble was on the way by changing the wording on the published QROPS list pointing out that pension savers need to carry out their own due diligence.”
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