Flexible access rules for the over 55s allow pension savers to draw down their pension savings as and when they wish.
Well, that’s the plan anyway even though high exit charges imposed by some providers grab up to 12% of the drawdown transaction value.
The British government plans to cap these charges to 1% of the money drawn down from April 2017.
UK pension rules allow foreign regulators to apply flexible access to a Qualifying Recognised Overseas Pension Scheme (QROPS).
Unfortunately, to do so means many financial jurisdictions have to pass local laws to allow the over 55s to access their cash when they wish.
The 70/30 pension drawdown rule
However, even if they do, only QROPS based in European Economic Area financial centres can offer the service.
The EEA covers the European Union, Norway, Liechtenstein and Iceland.
Switzerland is not in the EU or EEA.
Any QROPS provider based in another offshore location, such as Australia or Hong Kong cannot offer flexible access.
This is due to a UK regulation that bars QROPS providers based outside the EEA from letting retirement savers draw more than a 30% tax free lump sum from their pension. The regulation insists the QROPS provider must ring fence at least 70% of the pension pot for paying out an income during retirement.
Where QROPS can have flexible access
So, the definitive rule is QROPS within the EEA can offer flexible drawdown providing the pension regulator and local laws in the financial jurisdiction allow the measure.
QROPS outside the EEA cannot offer flexible access until the British government lifts the 70%/30% pension fund/tax-free lump sum rule.
Only one QROPS jurisdiction currently offers flexible drawdown – Malta, which by definition is in the EU and EEA.
Gibraltar, Guernsey and the Isle of Man have all indicated that they would like to introduce flexible access, but under current rules none are members of the EU or EEA, so access to pensions is governed by the 70/30 rules.
Britain originally intended flexible access to apply worldwide, but Chancellor George Osborne changed his mind with a reversal of the policy.
Effectively, pension savers wanting flexible access to their fund only have the choice of a Malta QROPS.