Is My QROPS Scheme an HMRC Approved QROPS?
This is a question that many clients and advisers want answering. Well, HMRC has just provided an update on their site which can be found here, http://www.hmrc.gov.uk/pensionschemes/transfers-to-qrops.pdf. Many advisers and clients were under the impression that if a QROPS scheme was on the QROPS list, that it was already approved by HMRC. As discussed many times before on this site, that is not the case.
In fact, HMRC had to add a caveat to their site in September 2008 to address just such an issue. Furthermore, HMRC even admit in the link above that they gave the impression that the ‘QROPS List’ was an approved one. Why would HMRC print such a list made available to advisers and clients at all if they are unapproved? It seems that HMRC wanted to have their cake and eat it too.
This renewed ‘reminder’ is a further warning to trustees, clients and advisers to take “pension busting” seriously. This further guidance has been issued after the Singapore ROSIIP case in which HMRC lost. I guess HMRC want to fire a warning shot that they will still fight a court case over any QROPS which they don’t approve of.
When is a QROPS an HMRC Approved QROPS?
HMRC have said they will not chase unauthorized transfers before September 2008 due to their admission of the caveat below which was later added to their ‘QROPS List’. However, after September 2008, they added the following to their website:
• the list was based on information provided by scheme managers,
• inclusion on the list did not mean that HMRC had verified all the information provided,
• a transfer could give rise to tax charges on the member and finally,
• UK scheme administrators could be discharged from their liability
In other words, the ‘QROPS List’ is NOT and ‘HMRC approved QROPS List’ merely a site of names of trustees who have APPLIED for a QROPS and those trustees have informed HMRC they have passed the QROPS test, but HMRC themselves haven’t checked.
So, they are placing blame firmly in the hands of the client, absolving themselves and UK pension schemes of any liability. The client must somehow know that the QROPS is ‘pension busting’. Surely, it is HMRC’s job to make sure that anyone on the list passes the QROPS rules or not publish a list at all. That way there is no confusion.
What HMRC are saying is that they will actively pursue anyone that they think have been ‘pension busting’ between September 2008 and the present. Luckily, this will affect a small minority of clients. Most QROPS trustees had tightened up their paperwork by then and it will affect only those brazen enough to disregard all of HMRC’s warnings. Now QROPS trustees have to log in and get a scheme ID online, so most new and existing QROPS should fall in line, especially any that are on HMRC’s ‘QROPS list’.
I think what HMRC are saying in their new guidance is to seek a letter from any QROPS company stating they have complied with the new QROPS rules (I guess for client protection in case they get an unauthorized payment) and get a professional tax attorney’s advice on whether that QROPS is following the rules, which broadly are:
• If the pension scheme is an occupantional pension scheme and there is a body that regulates occupational pension schemes in that country then the scheme must be regulated by that body
• For non-occupational pension schemes, it must be regulated if there is a body that regulates non-occupational pension schemes
• If the scheme is not regulated because there is no body that regulates that type of pension scheme then there are other requirements to be met that must be set out in the scheme rules
• The scheme must be open to residents
• There must be a personal tax regime including a tax relief for pensions
• The scheme must be recognised for tax purposes as a pension scheme
• If there is tax relief on the pension benefits paid to individual members of the scheme who are not resident
• in the same country as the scheme, then that relief must be available to those members who are resident there
• The scheme must be established in one of the countries mentioned in the regulations
• If the scheme is not established in one of those countries then there are other requirements to be met that must be set out in the scheme rules
These rules are modified for pension schemes of international organisations and overseas public service pension schemes. For advice concerning the rules for Registered Overseas Pension Schemes (ROPS) to become a QROPS, please see the HRMC link above.
Reading between the lines, HMRC are saying that they will chase anyone who has been “pension busting” and trying to get 100% of their pension as a lump sum since 2008 and is just warning trustees, advisers and clients alike that you can’t take large lump sums from a QROPS. That door to getting pension money out into cash is firmly shut and has been closed since 2008. Anyone breaking the rules will have a 55% unauthorized tax charge on that cash.
Understanding What a QROPS is for
HMRC have now clearly identified what a Qualifying Recognised Overseas Pension Scheme is for.
• The primary objective of the QROPS regime is to enable individuals leaving the UK permanently to simplify their affairs by taking their pension savings with them to their new country of residence. This is intended to enable them to continue to save to provide themselves with a higher income when they retire.
• In particular it is not considered desirable for individuals to be able to use a transfer to an overseas scheme to facilitate the withdrawal of their savings as a large lump sum or to receive more tax relief than would have been available had the pension savings remained in the UK. This objective was set out in a statement published on the HMRC website on 6 December 2011.
This is ridiculous, as most people who enquire about a QROPS are normally asking because:
(a) They want to access their pension early or want more in cash as their UK pension schemes have produced poor returns and they want to invest themselves or get it out the system
(b) They want to avoid being taxed in the UK as they no longer live there, so why should they pay taxes
(c) They want to pass the whole lot on to their named beneficiaries as a lump sum rather than the tax man getting it upon death.
So, HMRC’s objectives are out of sync with client’s objectives. Obviously HMRC want the client to have a pension for life and most sensible advisers wish the same for their clients. However, if HMRC wanted a QROPS just to move the pension to where the client lives, they would just outlaw Gibraltar, Malta and NZ QROPS if you aren’t moving to those countries and only allow you to move your pension to the country you are moving to.
Perhaps in the future, they may close this loophole, although I guess it would contravene the Schengen agreement which allows freedom of movement of capital within Europe (which I guess cements Malta’s position as a QROPS provider).
A Qualifying Recognised Overseas Pension Scheme should provide you with an income for life. I guess the UK government is worried about the swathes of ageing expats who are likely to return home in their 80’s to receive NHS treatment and benefits. They’d prefer for your pension to last for life and not to return home to place a further burden on the indebted UK system.
If you have a properly set up QROPS and a large amount of money, the pension should be able to provide you with an income for life and most importantly, as long as you live abroad, it avoids going into HMRC’s hands upon death.