The latest round of offshore pension tax changes has left many expats concerned over the safety of their money locked in overseas pensions.
Thousands of expats and international workers with UK pension rights had shifted their funds out of Britain to qualifying recognised overseas pensions – QROPS for short – only to find hundreds of schemes were outlawed by the UK tax authorities.
QROPS are special offshore pensions that let UK retirement savers port their funds abroad when permanently leaving the UK.
The QROPS industry was also concerned that ‘third-party’ QROPS might be banned as well, leaving the retirement plans for many in disarray.
A third party scheme is when an expat lives in one country but has a QROPS based in another. For instance, an expat in Dubai may have transferred UK pension funds to a QROPS in Guernsey.
HM Revenue & Customs (HMRC) has moved quickly to quell rumours about QROPS pensions and explained third party QROPS are not illegal.
“QROPS were not intended to be used as a method of converting existing pension savings into a lump sum or escaping taxation on pension savings,” said an HMRC spokesman.
“An individual can move their UK pension savings to a pension scheme established in another country which is different to the one in which they are resident.”
HMRC has also confirmed that the UK government has no issue with QROPS schemes – only the way some providers run them.
To push the point home, HMRC has issued another round of tax rules aimed at Guernsey QROPS.
From May 23, 2012, Guernsey’s S157E pensions are not recognised as QROPS and cannot accept transfers from a UK registered pension scheme.
Despite the action against Guernsey providers, QROPS investors still have more than 2,600 pension schemes to choose from in 49 countries.
HMRC has also pledged that any offshore pensions qualifying as QROPS on April 6, 2012, when the revised tax rules came in to force, can continue to hold funds without penalty, but they may not accept transfers if they do not meet the new rules.