Fresh questions raised over Canada pension transfers, as ROPS list shrinks

A UK financial adviser and pension transfer specialist, who previously was among those sounding an alarm over whether it was safe to permit clients to transfer their UK pensions into Canadian pension schemes, has come forward again with what he says are “urgent” fresh questions about UK pension transfers to Canada.

Geraint Davies, managing director of Montfort International, a Guildford, Surrey-based firm which specialises in helping Britons and others with UK pensions to transfer them to such countries as Australia and New Zealand as well as Canada, said he felt compelled to speak out again, as the UK’s official list of so-called “recognised overseas pension schemes”, or ROPS, in that country has fallen by almost 12% since the beginning of July.

Currently, Davies points out, there are there are some 61 Canadian schemes featured on HMRC’s official list of recognised overseas pension schemes, (or ROPS, until recently known as qualifying recognised overseas pension schemes, or QROPS), the online version of which is updated every two weeks. The list was last updated on 15 September.

At the beginning of July, there were 69 Canadian schemes listed, he notes, and this in turn is down from 95 that appeared on the 15 April, 2015 list, just before HMRC introduced its new Pension Age Test.

Davies says he suspects that HM Revenue & Customs is quietly removing schemes from the list, much as it removed more than a thousand Australian schemes from the list last year, except that it is doing so quietly rather than all at once, as was the case last April.

Davies adds that he understands HMRC has been contacting individual Canadian schemes after receiving tip-offs that they were “not meeting HMRC rules”, in the same way it declared more than 1,000 Australian schemes weren’t making the grade last year.

“It appears that about eight weeks ago, HMRC sent letters to Canadian schemes that claimed they were ROPS, and asked for their responses,” Davies told International Investment.

“We think that as more responses come back [to HMRC], then still more schemes will go.

“In fact, we at Montfort could see all the Canadian schemes being removed, as our research can’t see how Canada can operate ROPS – they may have to go over-55s only, as is now the case in Australia”, which, like Canada, allows residents to begin accessing their retirement benefits before the age of 55 in certain situations.

Among the schemes Davies says have disappeared since the beginning of July from the list have been two CIBC Investor Services Inc. retirement schemes; two CIBC Wood Gundy retirement schemes; one Computershare Trust Company of Canada Wolverton Securities Ltd savings plan; and two Manulife Asset Management schemes. Two Hollis Wealth plans left, to be immediately replaced with two others.

International Investment is contacting these companies to find out why they have pulled their ROPS. One of the companies contacted, Manulife, said through a company spokesperson that it did “not have anyone available to comment” on the matter.

Earlier this month, Davies says, Montfort received an email notification from one of these firms, which, without specifically mentioning that it no longer has a scheme on the list, said it had heard from HMRC that it was reaching out to Canadian firms offering ROP schemes to  see how they are handling the  pension age test requirement.

HMRC: Unable to comment on specific schemes 

HMRC spokesmen stress that they are unable to comment ” on identifiable schemes or jurisdictions”, and urge those with questions to visit the numerous website pages dedicated to the topic, including the relevant pages of its pensions tax manual, here,  here, and here.

In addition, an HMRC spokesman told International Investment: “It is important to note that the list confirms whether a scheme has been notified to HMRC and is qualifying, not whether it is a ROPS. We have a duty to apply the tax legislation fairly and consistently to everyone.”

He added: “To meet the pension age test, scheme managers must determine whether under their scheme, benefits can be paid out before they could be paid as authorised payments from a registered pension scheme. That is likely to be determined by the legislation of the country in question and the scheme’s rules.

“HMRC does not hold information about overseas pension schemes, that is why the scheme is required to self-certify that they meet the requirements to be a ROPS.”

As reported here in April, the concern Davies and a number of other pension transfer experts and advisers have is that the UK authorities are not satisfied that UK pension scheme members who transfer their UK pensions to Canada would not be able to access their pensions before the age of 55, which, under new rules HMRC brought in last year, is not permitted.

According to Davies and these other pension transfer specialists, the Canadian pension fund administrators who maintain ROP schemes have asserted that they are able to meet the UK’s age requirements by introducing their own in-house rules prohibiting pre-age 55 pay-outs.

Unhelpfully, they add, neither the Canadian authorities nor HMRC have provided specific guidance on this matter.

‘Still concerned’

Davies says one reason he is “still concerned” is because he, and others, are still being pressured by clients who are asking them to approve transfers of their pensions to Canadian schemes. They are, he adds, extremely wary of being held liable for the consequences, should the Canadian schemes into which these individuals transferred their pensions in fact prove not to meet HMRC’s requirements. Some people, though, don’t listen, he notes.

“We have signed off pension transfer advice reports [in which we have]… recommended against a transfer to a [Canadian] ROPS because the scheme documentation suggested that the scheme wasn’t a ROPS,” he says. “[But] we have then seen some people go against our advice and continue to transfer to schemes no longer on the HMRC List.

“Some advisers we have heard of in the UK are delivering recommendations to schemes that are no longer on the ROPS list, and even schemes on the list that, to us at least, seem as though they never were a QROPS or a ROPS. HMRC surely must go after those who have willfully transferred to a non-ROPS?

“And the FCA must look at these transfer reports, as we think many advisers are not doing due diligence on the receiving scheme, as to whether it is a QROPS or not.

“Some of these reports we have seen [have also] not given an acceptable tax comparison – you can’t do a UK to UK comparison for a migrant, knowing the figures factor out tax consequences.”

1,653 schemes removed

It was last April when HMRC stunned the UK and international pensions transfer industry by ruling that that all but one Australian scheme failed to meet its new standard. Before this fateful day, the HMRC list had showed some 1,653 Australian schemes that were prepared to take UK pension transfers.

But then, evidently concerned that some people might be looking to move their pensions to jurisdictions that permitted such early withdrawals on purpose, with the intention of gaining early access to their money, HMRC last year moved quickly to implement a new “Pension Age Test”, resulting in the de-listing of those 1,653 Australian schemes.

Under the new regulations, anyone who is found to have moved their pension to a scheme that would permit someone to access their pension funds before their 55th birthday, directly or indirectly, now faces a significant penalty, known as an “un-authorised payment charge”, levied against them by HM Revenue & Customs.

This is the case, pension industry experts point out, even if they themselves never actually attempt to access their pension early, or indeed, in theory, even if no one does – all that matters is that it is theoretically possible.

If you are an adviser whose client has been in a Canadian ROPS scheme that has been closed down by HMRC because it was seen to be in violation of the new Pension Age Test, or if you’re a client who has been affected, please let us know:

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