QROPS Pension Transfers May Be More Difficult After April 6th, 2017
Pension providers may well make pension transfers to QROPS, especially transfers from occupational pension schemes to QROPS more difficult after April 6th, 2017 when providers can refuse pension transfers offshore. Aviva have already put out guidance to pension scheme administrators which you can read here.
Aviva on Delaying Pension Transfers
“Whilst [The Pensions Regulator] expects the majority of transfer requests to be completed within the statutory timescale, and are not able to waive the trustees’ legal duty, the trustees do not have to proceed with the transfer if there is any concern over the advice received or they have been unable to perform checks due to factors outside of their control. [The Pensions Regulator] may extend the six-month payment deadline in limited circumstances if the trustees make an application within the six-month period. They should indicate the amount of extra time they require and the reasons for the application.”
The circumstances for extending the six month deadline are:
- Scheme is being wound up or about to be wound up
- The interest of the members would be prejudiced by the transfer
- The member has not taken all steps to enable the trustees to make the transfer
- Insufficient information provided to carry out the transfer
- A dispute between the member and scheme over the transfer value
- The scheme is ceasing to be contracted-out
Pension Companies to Block Pension Transfers to QROPS
In this article from the FT:
“Several pension providers have been given backing for controversial decisions not to agree to client transfer requests, as the Pension Ombudsman published the first wave of long-awaited decisions on complaints related to pension liberation.
In particular, outgoing pensions ombudsman Tony King ruled that Aviva and Zurich were within the law in refusing to transfer a member’s workplace pension fund, referring to provisions in the Occupational Pension Schemes Act 1996 which do not oblige transfer requests to a non-workplace scheme.
In a separate decision, Standard Life was partially backed after blocking the transfer of a client’s self-invested pension, though the complaint against the firm was partially upheld as a result of a failure to recognise that its own SIPP rules gave it more discretion to act.”
In fact, most SIPPs allow far more types of investments and unregulated investments than a QROPS which, under HMRC scrutiny, has severely tightened up the investment schemes allowed under a QROPS.
In a live debate on 8th January, 2015, the ex-pensions minister Steve Webb said he hoped the decisions would clarify trustees’ position and emphasise their duties, in response to a question asking whether the government would take action to enshrine the right to block transfers in law.
However, he refused to be drawn on the findings and said simply that the ombudsman was “rightly independent” of government.
It looks like Aviva, Standard Life and Zurich may likely make pension transfers to QROPS more difficult after April this year.
Pension Transfer Block Cases
The Pension Ombudsman has ruled on pension transfers in respect of 3 cases involving potential pension liberation. In summary, the PO gave notice that the pension transfer companies can only block a pension transfer if the member does not have a statutory right to a pension transfer.
Aviva’s regulatory obligation apparently extends to “preventing a policyholder from putting them where they wished, was a risk that the policyholder was at risk of misappropriation of investment or the SSAS client spending the money transferred before retirement”.
Standard Life “We do not regard the existence of a statutory right to be pivotal to the decision whether to allow or refuse a transfer. Many pension liberation vehicles ostensibly meet the legislative requirements; that is they appear to meet the definition of an occupational pension scheme and they are registered with HMRC”.
If we were to take the passive approach of allowing all transfers to schemes that meet the legislative requirements without carrying out further diligence they would be exposing many more customers to fraudulent pension liberation and/or adverse tax consequences. We would also not be acting in accordance with the wishes of the Pensions Regulator (whose guidance is relevant to personal pension schemes), HMRC and the FCA”.
Whilst we applaud Aviva, Standard Life and Zurich for looking out for client interests and busting pension liberation schemes, it appears that they may be blocking legitimate pension scheme transfers offshore to QROPS.
Here is the pension ombudsman on pension transfer blocks of occupational pension schemes to QROPS:
“ It would be a very strange result if people not in “employments of a description” who were earners in some other context (with earnings, however small or irregular, from some completely unconnected enterprise) could require a transfer value to be paid to the scheme. It would give the reference to “earner” arbitrary consequences if it just means a person with any earnings from any source.
As he had no relevant earnings he was not an earner and so his request for a cash equivalent transfer value was not for securing transfer credits. He had no statutory right to take a cash equivalent transfer value.
In other words, if you have an occupational pension scheme and transferring it abroad and do not have full time employment abroad, even if you are in retirement or between jobs, the pension scheme can refuse transfer.
The Pension Ombudsman does further state that the lack of earnings could, perhaps, have been easily altered (though not by payment of a nominal sum and/or a payment not in exchange for work).
In summary, the Pension Ombudsman has stated that providers, trustees, managers and administrators are advised that they can only “refuse to make the transfer beyond the end of the statutory period if there is no statutory right to it”. Where they find that there is no right to transfer they should be expected to be able to justify that to the person asserting the right.
If you want to transfer a pension offshore, transferring before April 6th, 2017 will make sure your pension is transferred under current rules. HMRC will likely change the rules for transferring again on April 6th, 2017. It has tinkered with the rules almost every year since QROPS rules were written in April 6th, 2006. Since then, HMRC have:
- Delisted Isle of Man QROPS – you can now transfer to the Isle of Man, but it is no longer income tax-free, often you will pay a 20% income tax in IOM, but depends on Double Taxation Agreements. There is also a 7.5% tax on death
- Delisted Isle of Man 50C QROPS
- Delisted Guernsey QROPS – Guernsey QROPS are now allowed, but you pay a 20% income tax
- Delisted Guernsey 157e QROPS – now open, but only to Guernsey residents
- Didn’t allow Gibraltar QROPS, then allowed them after they changed their income tax rate from zero rated to 2.5%
- Delisted Singapore QROPS
- Delisted HK QROPS – HK ROPS are now back on HMRC’s QROPS list
- Delisted NZ QROPS which allowed pension transfers to “cash in”, only for HMRC to change the law in the UK to allow you to effectively “cash in” your pension under the new pension flexibility rules. NZ QROPS are now open for business, but you can only have a 30% tax-free lump sum
- Delisted Australian QROPS – Australian ROPS are now back on the list, but you must be at least 55 years old to transfer
- Delisted Swiss QROPS for failing the pension age test
Almost every year, there is a new development which makes it a headache for pension scheme administrators in the UK, QROPS providers and financial advisers to keep up-to-date with the latest rules. Each year, more schemes are closed and I expect more to come.
Pension Transfers to QROPS May Be More Difficult After April, 2017 by Richard Malpass