Retirement savers and international financial advisers are faced with a riddle of why Cyprus Qualifying Recognised Overseas Pension Schemes (QROPS) are no longer open to transfers from UK pensions.
The latest list of self-certifying QROPS schemes has all five Cyprus QROPS schemes missing.
HM Revenue & Customs, which polices QROPS compliance worldwide, has made no comment about their exclusion, and as yet, neither have any providers.
One of the schemes is run for staff of global financial firm PricewaterhouseCoopers.
Risk of fines and penalties
Generally, three reasons would normally lead to exclusion from the HMRC list –
- The provider asked for removal
- The scheme has closed
- HMRC deleted the scheme for administrative reasons – which can include tax abuse
Some industry experts suggest the schemes removal may be because Cyprus has no official pension regulator.
“This has come as a complete mystery,” said one QROPS industry technical expert. “No one had any warning and Cyprus is a European Union state with all the financial reliability that should bring.”
The main concern for Cyprus QROPS investors is that HMRC has removed the schemes for wrongdoing, placing their funds at risk of fines of at least 55% of the transfer value.
Second offshore centre to lose QROPS status
Cyprus is only the second offshore financial centre to lose QROPS status, although hundreds of individual schemes have been deleted.
The first country struck off the list was Singapore in 2008. A long and bitter legal battle has followed, with the courts supporting HMRC.
In April 2012, nearly 400 QROPS stopped receiving transfers from UK pensions as a result of new tax rules that changed the basis of how providers could set up the offshore pensions.
More than 300 of the schemes were based in Guernsey, which was effectively closed as a QROPS centre overnight. Now, Guernsey QROPS can only administer existing schemes or take in transfers from residents.
QROPS income tax rates
Other schemes were closed in the Isle of Man and New Zealand.
HMRC stipulated that retirement savers with investments managed by schemes in these three QROPS centres would face no tax penalties as the result of the law changes.
The removal of QROPS in Guernsey, the Isle of Man and New Zealand mainly related to each country offering different income tax rates on pension payments to residents and non-residents.