In the run up to Chancellor George Osborne’s Autumn Statement 2015, a lot of Qualifying Recognised Overseas Pension Scheme (QROPS) experts focussed on the 70% rule.
They expected Osborne to announce changes to bring QROPS outside of Europe in line with the option for providers in the European Union to offer pension freedoms.
The government intended to extend pension freedoms to QROPS when they were introduced in the UK on April 6, 2015.
The freedoms allow retirement savers flexible access to their pension funds to spend how they wish from the age of 55.
Just before the freedoms were introduced, The Treasury announced an about turn and restricted the pension freedom option to QROPS based in the EU – but only as a temporary measure.
That temporary measure has lasted for nine months now, and to date, no one in the government has hinted about when this might change.
What is the 70% rule?
The rule is written into the QROPS blue print and requires providers to ring fence 70% of any tax relieved pension contributions transferred into the scheme from the UK, while limiting any tax free lump sum payment to a maximum of 30% of the fund.
Tax relieved contributions are payments into the UK pension that received pension contribution relief.
The intention behind the rule is to give retirement savers a fund to pay pension benefits for life.
In March, the government indicated a consultation was underway about bringing in pension freedoms for QROPS outside the EU.
The lack of a decision leaves the QROPS market in a limbo.
No flexible access outside the European Union
A QROPS pension based in Malta could benefit from flexible access if the regulator changes local rules to align them with British pensions, but a retirement saver with a QROPS in Gibraltar or the Isle of Man or Channel Islands cannot because they are outside of the EU.
For these financial centres, the 70% rule applies even if local regulators change their laws to allow flexible access.
This limbo prevents many retirement savers who want to transfer a UK onshore pension to a QROPS with a limited choice if they want to move their money to a financial centre where flexible access may arrive sooner rather than later.
To date, no QROPS centre offers flexible access, although Malta, Gibraltar, the Isle of Man and Guernsey have all indicated they would like to do so. Of those centres, only Malta is in the EU.
