According to the Office for National Statistics, Qualified Recognised Overseas Pensions Schemes (QROPS) have seen over £1.3 billion in pension transfers since the introduction in 2006. QROPS were designed to allow those who had spent their entire lives working and saving in the UK, to then emigrate without leaving their money behind.
QROPS are subject to a set of rules implemented by HMRC and all schemes must comply with these rules in order to allow a free transfer. If a pension is transferred into an unrecognised scheme, it is liable to a huge 55% transfer fee, something that so far has not impacted many. A list has always been available on the HMRC website and although it is updated regularly, it is not the only source which should be consulted when researching.
When QROPS were introduced, it was widely assumed that most expats would just transfer their UK pension to the country in which they chose to reside, however this was not a pre-requisite of the scheme, and as such most have chosen to transfer their funds into the more attractive tax jurisdictions offered by places like the Isle of Man and Guernsey.
The surprising leniency in this respect has not been without problems though, as the compliant and non-compliant funds offered in these jurisdictions were often very similar. This meant that especially during the first few years, financial advisors were using an unsettling amount of guesswork when identifying QROPS for clients due to the lack of any clearly defined rules relating to the requirements for qualification.
Exclusion
Famously a scheme based in Singapore – a jurisdiction now almost completely excluded – was initially thought to qualify, only to be ruled five years later that it had never qualified. Those with money in the scheme were hounded briefly by the HMRC for a 55% cut of whatever they had transferred , but they were recently forced to back down due to the lack of defined regulation at the time.
In April 2012, there was finally a bit of clarification given which required QROPS to annually report back to HM Revenue & Customs for the first 10 years of membership. After the first 10 years, they would then be under their own local rulings, which are usually far less restrictive than those found in the UK.
At the same time as the clarification over the reporting requirements, it was also decided that the schemes should not be exclusively available to British expats, instead they should be made open to local residents too, or face exclusion. This was bad news for Guernsey who found over 300 schemes de-listed as a result of them being unavailable to locals, however the existing members of the schemes faced no penalty as the ruling was new. It simply meant that Guernsey could no longer accept new transfers.
Guernsey stepped aside as the choice destination for transfer, and along came EU members Malta and Gibraltar to pick up the slack with their apparent stability. Both jurisdictions are currently popular as they are widely regarded as being relatively safe from a potential de-listing.
What we have learnt since the introduction of QROPS in 2006, is that above all, research and due diligence MUST be undertaken before the selection of a jurisdiction for transfer. Simply having a cursory glance through the HMRC list is not enough. A qualified financial advisor will undertake all the research and due diligence to ensure that the selected destination qualifies for the scheme. Compliant transfers are the only option, a 55% fee is not the way forward.
