The landscape for expat offshore QROPS pensions is undergoing a seismic upheaval as the result of tax and rule changes ordered by the British government.
Despite ups and downs since the Qualifying Recognised Overseas Pension Scheme (QROPS) was introduced in April 2006, expats have not experienced such wide-ranging changes.
Two big changes have undermined the market –
- QROPS providers must ensure they qualify to offer expat pensions by certifying that they do not pay benefits to the under 55s unless exceptional circumstances prevail
- Retirement savers must pay a 25% tax charge when transferring their UK pensions to a QROPS if the scheme is not based in the same country where they live, or they live in the European Economic Area (EEA) and the pension is offered in another EEA country or the pension is not an employer scheme.
Dip in fortunes
For example, Australian pensions are consulting with HM Revenue and Customs (HMRC) about problems over benefits to savers under 55 years old to buy a home or as hardship payments.
If a solution is not found, more than 400 QROPS are at risk in the country, which is the world’s leading financial centre for QROPS by number of pensions.
The second biggest market, the Isle of Man, is also in peril. With more than 200 QROPS, the IoM has long been a leading centre alongside Australia. But under the new rules, because the Isle of Man is outside the EEA and not a favourite expat destination, the market could also suffer.
Gibraltar, with 50 QROPS, is in a similar situation.
The accidental winner is likely to be Malta. With 32 QROPS and the option for retirement savers to take flexible access along the same lines as UK pension freedoms, Malta is an EEA member open to British expats in the popular retirement destinations of France and Spain.
Whatever happens over the coming months, the QROPS market is in a state of flux and is set to change.
The UK Treasury says the changes are aimed at levelling the playing field between UK and expat retirement savers and making a fairer pension system that takes away tax advantages for living overseas.