QROPS or are they now just ROPS?
Since 5 April 2015 and the introduction of Statutory Instrument 673 there has been mass confusion over what it all means.
With the long-awaited changes in UK Pension legislation fast approaching, and “flexible drawdown” becoming a reality, HMRC turned its attention to QROPS. In March 2015 they issued a draft Statutory Instrument which became law on 5 April, and which in turn had a dramatic impact upon the overseas pensions industry.
First to be noticed was the change in the HMRC published list: the word ‘Qualifying’ was dropped, and the wording was also changed as below:
HMRC can’t guarantee these are ROPS or that any transfers to them will be free of UK tax. It is your responsibility to find out if you have to pay tax on any transfer of pension savings. HMRC will usually pursue any UK tax charges (and interest for late payment) arising from transfers to overseas entities that do not meet the ROPS requirements even when they appear on this list. This includes where taxpayers are overseas. HMRC will also charge penalties in appropriate cases. Tax relief is given on pensions to encourage saving to provide benefits in later life. Accessing benefits (directly or indirectly) before age 55 will result in a liability to UK tax charges in all but the most exceptional circumstances. You should seek suitable professional advice including from a regulated financial adviser.
In reality, what does this mean?
A lay interpretation of this would suggest that the list is meaningless. HMRC takes no responsibility for what is on it, and recommend individuals take ‘professional advice’ from a regulated financial adviser – the ball is very much in the court of the financial adviser. If they recommend a product or jurisdiction that HMRC at some time in the future decides was not compliant, they had better have good PI cover, and/or very strong research notes.
Picking a jurisdiction and product provider has never been more important. This was really brought to a head recently when some product providers and jurisdictions actually read the Statutory Instrument 673 – and in particular the section on retirement age, which now has to be a mandatory 55:
“(6A) The benefits payable to the member under the scheme, to the extent that they consist of the member’s relevant transfer fund, are payable no earlier than they would be if pension rule 1 in section 165 applied.”
Not wishing to cast aspersions on anyone in particular, but it cannot have been missed in the trade press that three major jurisdictions almost in their entirety did not take note: Australia, New Zealandand Ireland are those who have been publicly “outed” as being not compliant with the new rules. More importantly, those schemes which were not compliant on 5 April 2015 had an obligation through their undertaking to HMRC to report such non-compliance within 30 days of that date.
Nasty shocks coming?
It’s worrying, the belief in some quarters that it is HMRC’s responsibility to inform ROPS of changes in the rules and allow them time to sort out the issues. The IAPF on 5 June was quoted as saying: “It’s only come onto our radar in the last couple of days. We need to look at it and see what can be done on it and if anything can be done on it. Schemes have the options of changing their rules or they can no longer qualify as QROPS”.
HMRC issued a chase letter to all schemes which asked two straight questions:
- From 6 April 2015 onwards, is the scheme a Recognised Overseas Pension Scheme (ROPS) under the UK tax law?
- If ‘Yes’ please answer Questions 2 and 3 below
- If ‘No’ please ignore Questions 2 and 3 below and complete and return form APSS251 B
- How does the pension scheme meet the Pension Age Test?
You can tick one or more boxes.
- The law of the country in which the scheme is established acts to prohibit the payment of benefits before age 55 unless the member is retiring due to ill-health. Please specify the relevant legislation and section where this is covered.
- The scheme rules do not allow for benefits from funds that had UK tax relief to be paid earlier than age 55 unless the member is retiring due to ill-health. (This rule may apply only to the UK tax relieved funds or may apply more generally)
The failure to inform HMRC is a breach of a Scheme’s undertakings, and we will have to wait and see what action HMRC will take. Suffice it to say, any transfer to a Scheme after 5 April that was not compliant on 5 April is an “unauthorised “ transfer and subject to a 55% tax charge. Unless HMRC ‘roll over’ and capitulate, some people might be in for a nasty shock.
HMRC’s most recently published list updated 9th June (the previous one was only 1st June) has removed some Australian and Irish Pension Schemes, but we expect to see more in the coming days.
Where does the liability lie?
It is up to Schemes who register for a ROPS registration number to ensure that they remain compliant with not just current regulations but any changes that are made.
It is up to advisers to ensure they know what the rules are and whether providers are on top of their game.
It is also up to ceding schemes to do due diligence on the schemes to which they transfer client pension funds.
If you have a QROPS right now, please see attached and then contact me urgently……….!