Transferring My Pension Out of a Guernsey QROPS
The UK pension rules now allow for full drawdown flexibility. Many who hold a Guernsey QROPS are considering moving their pension back to the UK or Malta in order to achieve full drawdown. Many are considering cashing in their pension. I will argue why that would be a poor idea.
For individuals who were fortunate enough in the past to become a member of a Guernsey QROPS prior to the widespread QROPS changes in April 2012, can continue to take advantage of the many benefits that such a scheme offered before the QROPS status was removed.
We have many such clients, and it therefore makes little sense to transfer out of a pension scheme where benefits are paid gross (i.e. 0% Guernsey income tax deducted at source) to another jurisdiction (e.g. Malta) where they could be subject to tax at source if a suitable DTA does not exist.
Transferring a Guernsey QROPS Back to the UK
If they transfer to a QROPS in the UK, income tax is at the highest marginal rate of tax of 20% – 45%. Currently, British expats are allowed a personal allowance of up to 11,000 GBP per year, but this may be removed for expats and is tabled for discussion for removal by HMRC in 2017. In other words, if you move your pension to the UK and remain an expat, you may have to pay UK income tax on the full amount with no personal allowance allowed. Plus, any cash you take out would form part of your inheritance, which could be taxed at 40%.
Transferring a Guernsey QROPS to Gibraltar
If they transfer to a QROPS in Gibraltar, the income tax would be 2.5% at source, plus they would pay the relevant income tax in their country of residence at retirement. As Gibraltar is not in the EU, under current rules, only 30% can be taken as a cash lump sum and the rest would have to provide an income for life.
Transferring a Guernsey QROPS to Malta
If they transfer to a QROPS in Malta, they should be allowed a full drawdown option, although many of the QROPS trustees are waiting until December to allow it.
Technically, full drawdown can be taken under the new Pension Act in Malta. We are told that all the QROPS Trustee’s will be re-licensed under that act in December by the Malta Regulators. Some trustees may also apply a charge or exit fee to allow a pension to be cashed in early, as well as any fees for each pension payment.
Full Flexibility in All QROPS Jurisdictions?
If HMRC re-visit the draft QROPS legislation that they did a U-turn on in March this year and implement those proposals, then full flexibility, as in the UK, will be introduced to all QROPS jurisdictions, not just EU member state countries such as Malta, as the position currently stands. An equivalent amendment also needs to be made to the QNUPS legislation though in order that non-EU member state QROPS would continue to retain their IHT exempt status.
If this did not occur, and the Guernsey government permitted full flexibility, then any Guernsey QROPS member encashing their pension pot would open themselves up to an IHT liability on death.
Most of the QROPS trustee companies we have spoken with have said they do not wish to risk any of their members becoming subject to IHT on their Guernsey based pension plans and thus would not even consider offering full flexibility if it was introduced in the future until the matter regarding the QNUPS legislation was fully resolved.
Guernsey QROPS Summary
In summary, a member of a Guernsey pension plan who managed to get in whilst the scheme was still a QROPS is in the best position they could be. Members who want to leave would have to pay extra fees for both transferring out of a Guernsey QROPS and subsequently transferring in to any new arrangement, which would also mean moving from a tax-free environment at source to one that would potentially be subject to tax at source, seems illogical.
When would it be prudent to transfer? If clients are in ill health or have a successful business already and need the money to grow the business or there are other mitigating circumstances where the client desperately needs cash, then a transfer to an alternative arrangement may be considered. But, for the majority of clients, we are saying stay put. For clients who still want to transfer despite these warnings, we are offering a free transfer (i.e. waiving the set up fee for a transfer to another QROPS) until the end of 2015.
Please contact us for more details.Should I Move Out of My Guernsey QROPS to a Malta or Gibraltar QROPS? by Richard Malpass