The government is considering extending early-access pension reforms to Qualifying Recognised Overseas Pension Scheme (QROPS), says the Treasury.
Although no decisions have been made, an announcement confirming how the new drawdown rules will affect QROPS is expected soon.
The new rules allow retirement savers aged 55 or older to cash in their pensions – providing they pay any income tax due on any amount over and above the tax-free lump sum.
According to the Treasury, how the rules will work for QROPS has not been worked out yet, because any income tax due is paid in the country where the pension member lives, not in the UK.
Some QROPS jurisdictions also allow pension savers to draw more than a 25% tax-free lump sum, which makes transferring to a QROPS a mouth-watering option for expats.
Ministers considering QROPS rules change
Although the Treasury has confirmed QROPS reforms may be on the way, the spokesman stopped short of explaining just how they will work.
“The government is aware of the implications the new rules have for QROPS,” said the spokesman.
“I can say we are considering whether to extend the new rules to QROPS or not, but cannot go into the details at this time.
“There will be an update in due course and certainly before the rules come into force in April 2015.”
Technically, QROPS are registered pensions that have the same status as many British onshore pensions; specifically self-invested pension plans (SiPPs), which do come within the new drawdown rules.
QROPS gold rush
QROPS have many other similarities in the way they work for retirement savers as onshore pensions and bringing them within the new regime would seem to be logical.
The Treasury suggested the issues under consideration involve monitoring QROPS savers do not gain any undue tax advantage that is not available to an onshore pension from loosening the drawdown rules.
If the government does decide to extend pension reforms to QROPS, then an offshore pension gold rush is expected for financial jurisdictions like Gibraltar and the Isle of Man, which offer higher lump sum tax-free drawdowns than the UK and allow retirement savers to live in other low tax countries.
Potentially, switching a UK pension to a QROPS could save many expats thousands of pounds in tax if they live in a country like Dubai, which charges no income tax.
