23 Out of 25 Hong Kong QROPS Removed
HMRC has decided to de-list 23 out of 25 Hong Kong QROPS (Qualifying Recognized Overseas Pension Schemes) with no explanation. Only two remain; the Asia Alternative Assets Partners Limited Pension Scheme and the David Watt Retirement Benefits scheme, which we understand are operated by Lutea.
Note: This is an old article from 2013, there are currently 15 Hong QROPS which are now back on HMRC’s list only a handful of which you can transfer to as many are corporate schemes. Please read the latest article here concerning pension transfers to Hong Kong (correct 12th Oct, 2016).
Some of us in the industry have been wary of Hong Kong QROPS for some time given issues that arose with the Beazley Consulting scheme in Hong Kong which was removed from the HMRC list a couple of years ago for not operating as a proper occupational pension scheme and the issues which arose with the Singapore QROPS run by Equity Trust: the Panthera Recognised Overseas Self Invested International Pensions Retirement (ROSIIP) Trust in neighbouring Singapore in 2009 culminating in Singapore’s end as a QROPS jurisdiction. ROSIIP has recently been in the press where HMRC lost the case to penalise members with a 55% tax charge plus interest as the members had validly transferred in good faith to the plan and fortunately, now the case has been resolved, their pensions remain intact. The same treatment has been afforded by HMRC to those who made a transfer to the Hong Kong Beazley scheme, nevertheless both plans were withdrawn from the HMRC list and are now precluded from accepting new UK transfers.
Singapore and Hong Kong have been the only two Asian jurisdictions offering QROPS and with Hong Kong being the only Asian player in the game this new development comes as somewhat of a shock to the market leaving us all wondering what is HMRC’s motive?
Many have said that Hong Kong schemes seemed to allow much larger pay-outs from pensions than Gibraltar or Malta QROPS pension schemes, however with so few schemes on the list when compared to the likes of Guernsey or Isle of Man, and more recently with Gibraltar and Malta, little is actually understood in the industry about how the pensions regulations work in Hong Kong. In fact, Hong Kong schemes all operate within the QROPS parameters and although Hong Kong pensioners are able to withdraw the entire fund on retirement free from Hong Kong tax, the QROPS schemes in Hong Kong all operate to restrict pension commencement lump sums from UK tax relieved transfer funds to 25%, which is stricter than some other QROPS on offer around the world, with the remainder being used to provide an income for the life of the member.
According to Chris Brown at Lutea, HMRC has conducted a review of the occupational pension regulations in Hong Kong to ensure that those schemes which should be regulated in Hong Kong are regulated. These rules are clearly marked out in the Occupational Retirement Schemes Ordinance (ORSO) of Hong Kong.
Hong Kong has a very strict and efficient regulator called the Mandatory Provident Fund Schemes Authority (MPFA) which regulates all Occupational pensions in Hong Kong in accordance with ORSO and there are strict penalties in Hong Kong for not adhering to the rules.
We understand that there are two types of regulation in Hong Kong for occupational pension plans, ORSO Registered Schemes and ORSO exempt schemes and it is those which have applied for exemption from ORSO regulation which are under HMRC scrutiny.
We understand that where 50% or less of the scheme membership are not Hong Kong permanent residents (i.e. they have lived there permanently for at least 7 years and have been granted permanent residency status in Hong Kong) the trustee can apply for exemption from regulation. It seems that it could well be these schemes with which HMRC have a problem with in their current form and they have been withdrawn from the list and may no longer be able to accept new money from the 1st of Aug 2013.
ORSO registered pension schemes would appear to still be deemed by HMRC as acceptable under QROPS, given that the two remaining schemes are ORSO Registered.
We understand that a number of Lutea’s scheme which have been withdrawn were registered schemes until recently when Lutea applied for exemption from regulation pending winding up and transfer of the member funds to the Lutea HK Master Pension Plan (LHKMPP); their latest non-occupational pension scheme. We understand that these schemes would then have been withdrawn by Lutea from the QROPS list.
Brown reports that the remaining Lutea schemes which do not feature on the latest list are non-occupational schemes and in respect of which there is no regulatory body in Hong Kong and which includes LHKMPP.
HMRC have written to Lutea in relation to these schemes requesting certain information stating that they have temporarily suspended them from the list pending confirmation that they meet the relevant conditions for schemes of these type under QROPS, which we understand has been provided and Lutea awaits confirmation from HMRC that they remain satisfied with the structure of these plans and re-instatement of these schemes on the list in due course.
According to the International Adviser, a spokesperson for HMRC have said that they “cannot discuss the reason why a particular scheme no longer appears on the QROPS list”.
The spokesperson added: “HMRC keeps the QROPS regime under review. In addition, HMRC will always be in contact with a scheme before removing it from the published list.
“If members of one of these schemes are concerned about it being removed from the published list, their first point of contact should be the scheme manager.”
HMRC are closing ranks again and the lack of transparency from HMRC certainly makes it more difficult for advisers to give advice to clients.
The Occupational Retirement Schemes Ordinance (“ORSO”) came into force on 15 October 1993, and is the governing legislation for the regulation of occupational retirement schemes operating in or from Hong Kong.
Generally the minimum benefit age for an ORSO scheme is age 50 and as tax relief is not given in Hong Kong on contributions paid by the member to the Plan (i.e. they are made from tax paid income) and due to this the entire fund can be withdrawn as a lump sum free of tax in Hong Kong upon retirement; ie there is no tax relief on the in and the way out. It is up to the trustee to devise a plan to operate under QROPS such that this is restricted to the 70/30 rule, which we understand was the case with all QROPS in Hong Kong, but it is the point on regulation which HMRC are reviewing.
We understand from Brown that any Hong Kong QROPS which are withdrawn permanently from the list will no longer be able to accept UK transfers after 1st of August 2013, but provided that pension transfers from the UK were made in good faith prior to the 1st of August 2013, they will continue to be operated by the relevant QROPS trustee under the QROPS provisions in the same way that those schemes withdrawn sometime ago in Guernsey and some other jurisdictions would be allowed.
Hong Kong remains a well regulated economically safe and efficient place to establish a maintain a retirement pension and may continue to be a QROPS option once HMRC have completed their review.
Update: HMRC have completed their review and there are a number of acceptable schemes which we have access to. In fact Hong Kong QROPS / ROPS are actually occupational pension schemes which have preferable tax treatment in some countries due to the nature of it being tax recognised and an occupational pensions scheme. Also, many of the DTA’s give the taxing right to Hong Kong, which means that there could be zero tax on growth, death and income in many circumstances. But, advisers must read the DTA articles carefully.
We can now recommend Hong Kong QROPS again, please ask us for the lastest HK QROPS fees and make sure you only use HK QROPS which satisfy the ROPS conditions and is listed on HMRC’s website. Please contact us for more info.23 Out of 25 Hong Kong QROPS Removed by Richard Malpass