The pension age test has triggered a major upset in Qualifying Recognised Overseas Pension Schemes (QROPS).
The seemingly innocuous test has seen thousands of QROPS stop taking transfers in after April 6, 2015.
The test is simply an age limit that bars anyone below minimum pension age drawing benefits from a QROPS unless the retirement saver is retiring due to ill-health.
The minimum pension age is 55 years old unless the saver is suffering serious ill-health which is proved by a doctor writing to the pension provider confirming the saver expects to die within 12 months.
The test evolved from an overhaul of pension rules in the UK which introduced flexible access drawdown on April 6, 2015.
Passing and failing the pension age test
Any QROPS can only continue as a QROPS after that date if the scheme rules pass the pension age test.
Many overseas pensions have financial hardship pay out options for savers under 55 – mainly in Australia and New Zealand. These schemes automatically failed the pension age test and are no longer QROPS.
The pension age test is an ongoing test, so it’s not only applied on the date of a pension funds transfer out of the UK, but for the lifetime of the contract.
If the country where the QROPS is based has no minimum pension age or restriction on when the scheme can pay benefits, then the QROPS provider has to write these clauses into the scheme rules – and if they don’t, the pension is not a QROPS.
Importance of passing the pension age test
A transfer of tax-relieved funds from the UK into a QROPS or an onward transfer of tax-relieved funds between QROPS becomes an unauthorised transfer, which is taxable at a starting rate of 55% of the value of the transfer.
Understanding the rule is important because HM Revenue & Customs (HMRC) demands QROPS savers are responsible for checking their scheme passes the test before they transfer funds offshore.
A key question to ask you QROPS IFA is for written confirmation from the provider that the scheme does not fail the pension age test.
Read HMRC official guidance about the pension age test for QROPS
