The government has quickly moved to plug a gap in Qualifying Recognised Overseas Pension Scheme (QROPS) rules for civil servants and public sector workers.
After a loophole was spotted in rules that were aimed at stopping the transfer of civil and public sector pensions to QROPS, retirement savers were warned more legislation was on the way.
The Teachers’ Pension Scheme was the first to reveal that rules designed to stop the transfer of unfunded public sector pensions were not watertight and would let retirement savers switch their funds to a QROPS if the scheme was based in the European Economic Area and was not an occupational pension.
On August 18, 2015, the government published a statutory instrument effectively banning civil and public pension transfers to QROPS
The Unfunded Public Service Defined Benefits Schemes (Transfers) Regulations 2015 does not allow transfers into a QROPS that offers flexible benefits from September 7, 2015.
Legal oversight
This leaves a small window for transfers underway to complete, providing they match the rules laid out in the new regulations.
The original ban was put in place in order to prevent transfers to QROPS from siphoning cash out of the Treasury. Civil and public sector pensions are unfunded as the payments to members are not investment backed and come from money flowing into the Treasury.
The loophole has nothing to do with the status of QROPS pensions, but was more of an oversight by Treasury mandarins when the original rules were drafted.
Successive governments have had a chequered history of making errors when drafting QROPS legislation since the pensions came into being on April 6, 2006.
QROPS embarrassment
The most embarrassing for the government was a dramatic High Court climb down in 2013 when faced with a legal challenge against tax demands issued when HM Revenue & Customs (HMRC) withdrew QROPS status from Singapore in September 2008.
This led to a humiliating explanation of QROPS policy to the judge and a major rewrite of the wording of consumer warnings on the QROPS List published each month by HMRC.
This has just undergone another major edit in the past few weeks to state that HMRC does not check the status of any QROPS pensions listed and that individual retirement savers must do so before switching their funds.
