The tax man’s tightening of pension registration rules leaves Qualifying Recognised Overseas Pension Schemes (QROPS) outside the net.
HMRC is moving away from the current self-certification of onshore registered pensions to a tougher regime to check any new pensions are genuine funds and not fronts for fraudsters.
Although no QROPS providers are involved in ongoing action by the UK’s pension liberation task force of regulators, police and HMRC, the fear is scammers could move offshore as the battle against fraud hots up in the UK.
Industry observers and HMRC fear one of the weaknesses in the QROPS process is that a provider merely has to notify HMRC that an offshore pension has opened for business, and any checks on whether the scheme meets pension rules are carried out sometimes years later.
This policy has left hundreds of QROPS retirement savers facing fines and penalties for transferring funds to illegal schemes. They were unaware the fund failed to meet the listing rules and was later suspended by HMRC.
Tax penalties
HMRC withdrew from a controversial case at the High Court in the summer after more than 120 retirement savers who had invested in a Singapore QROPS argued tax penalties for switching their pensions offshore were unfair.
Their lawyers explained that as HMRC had include the QROPS on a list of pensions able to accept transfers which was then suspended for failing to meet offshore pension rules.
As the transfers to the Singapore QROPS were made during the listed period, the court heard the investors had no way of knowing their transfers were considered illegal, and had they known, the transfers would have halted.
As QROPS are registered pensions under UK law, they have to undergo the same registration process as onshore schemes, but HMRC has confirmed they are outside the new regime.
Pension liberation
The latest rules target pension liberation by not allowing a UK provider to transfer cash to another onshore pension until registration of the receiving scheme is approved and a risk assessment giving the fund a clean bill of health is completed by HMRC.
“I can confirm QROPS will not follow the same process as onshore pensions under the new rules,” said an HMRC spokesman.
QROPS is a multimillion pound business with around 10,000 UK pensions transferred offshore each year.
With an average pension pot of £36,000, that adds up to a £360 million a year industry.
