New Flexible Pension Rules and QROPS Retirement Benefits
Following the announcement of the new flexible UK pension regime in the 2014 Budget, one of the most common questions has been whether the new freedoms extend to QROPS. A draft Statutory Instrument published on 19th December 2014 confirms HMRC’s plans to extend the new rules to QROPS.
But, now there is a spanner in the works. The FT has reported that the guidance for pension scheme administrators on how to handle pension transfers has been delayed for a second time and it is now not expected to be published until February,
They are particularly worried about pension liberation which seems pretty hypocritical seeing as the UK government have done a complete U-turn.
It appears as though HMRC are now worried about people cashing in their pensions under “pension liberation” which essentially now means cashing in your pension with low taxes in HMRC’s eyes, whereas before they were before concerned about pensions being turned into cash. Gibraltar has only a 2.5% income tax.
The Expat Pensioner Tax Break Conundrum for the Government
In theory, pensioners could transfer there pensions to Gibraltar, pay the 2.5% income tax and cash in the whole lot. How QROPS providers, HMRC and financial advisers would deal with this is an open ended question at the moment and we won’t know more until at least February.
My guess is that providers will have to impose higher exit strategies or that the government will have to impose some sort of restriction somehow on transfers out.
Guidance for pension scheme administrators on how to handle pension transfers specifically to tackle the threat of pension liberation has been delayed for a second time and it is now not expected to be published until February.
Changes to the Statutory Instrument
The key measures outlined in the instrument are as follows:
- The requirement to use 70% of UK tax relieved funds within a QROPS for the provision of a lifetime member income will be removed. This previously formed one of the QROPS qualifying conditions for certain jurisdictions.
- To maintain recognition, QROPS schemes domiciled outside of the European Economic Area (EEA) must be regulated or the QROPS provider must be regulated as a pension provider and the regulation must cover provision of the QROPS in question.
- Again for continued recognition, retirement benefits from the QROPS may be payable no earlier than age 55.
- There will be a more robust reporting regime once the member draws benefits from the QROPS. This is to ensure that the member does not enjoy excess tax relief after benefits are accessed flexibly.
The draft Statutory Instrument was subject to a four week consultation period which ended on 16th January, we now await feedback.
What is the impact of the changes?
The draft legislation is positive news for the QROPS industry. It should be noted however that not all QROPS jurisdictions will offer a flexible benefit structure in line with the UK. Local legislation wherever the QROPS is domiciled must either already permit this or be amended to allow flexible benefits.
Jurisdictions such as Gibraltar and Malta (see below) have already taken steps to amend their pension rules to facilitate the new freedoms. As the legislation takes shape the local pension rules may require further refinement and there must be due consideration of the new regulatory obligation.
Further information will be available once the outcome of the consultation is published.
New rules for Malta pension schemes and Malta QROPS 2015
Wednesday 7th January saw the Malta Financial Services Authority (MFSA) finally publish its new pension scheme rules. The new rules and regulations, which fall under the “Retirement Pensions Act”, came into force on 1st January 2015.
The new framework provides a pragmatic but robust landscape for pensions in Malta with separate rules for personal and occupational pension schemes.
The legislation makes some welcome changes and these are summarised below:-
- Malta QROPS will no longer be subject to the rules for retirement benefits in Malta, the UK rules will apply instead. This will ultimately afford Malta QROPS members full flexibility in line with the new UK regime. In other words, you can take as much as your pension as you like after April 16th in a QROPS in Malta.
- The minimum age to draw benefits has increased to 55 from 50 years old.
- The retirement age has increased now to 75 instead of 70 years old.
- Pensioners can now invest in self-managed Malta QROPS and also borrow money against their Malta QROPS to buy commercial property. The pension scheme may borrow up to 50% of the value of the property to assist with the acquisition.
- Investment Advisers or Investment Managers must either be locally regulated in Malta, regulated within the European Union and ‘passported’ into Malta, or be regulated to an equivalent standard elsewhere.
There will be a transitional period for pension providers in Malta as they amend their licensing to fall under the new rules and regime.
Rules for Gibraltar Schemes
- under Gibraltar rules, they are looking to match UK benefits and pension freedoms.
- but unlike Malta, the investment advisers don’t need to be locally regulated
We will have to wait until February and perhaps even until April to find out full details. Those worried about tax increases in the UK can transfer to a QROPS now to get out of the UK tax net. The next budget may enforce more regulations on QROPS providers. We will know more soon.New QROPS Rules Still Up in the Air by Richard Malpass