ROPS industry on alert as Autumn Statement signals yet more changes

The industry that grew up around the ability to transfer UK pensions overseas, in the wake of a raft of pension industry reforms that  took effect on a particular day in 2006 known as A Day, is on high alert today, 24 hours after chancellor Philip Hammond revealed yet more changes to the regulations that govern the way pensions are transferred are planned.

As reported here yesterday,  the Autumn Statement already has revealed that the government intends to change the tax treatment of “foreign pensions” – including but not limited to recognised overseas pension schemes, or ROPS, held by UK residents –  in order to make them “more closely aligned with the UK’s domestic pension tax regime, by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones”.

Currently a UK resident is only taxed on 90% of any pension income received from a non-UK pension scheme, meaning that 10% is untaxed. Although details of the proposed change will not be available until 5 December, it is thought that the income will now be taxed in the same way as a UK pension, ie, on 100% of the income.

Yesterday’s Autumn Statement also stated that specialist pension schemes for those employed abroad, known as “Section 615” schemes”, will now be closed to new saving; and that the period during which the UK can lay claim to taxing the lump-sum amount UK pensioners living outside the UK get to take when they “commence” taking their pensions is to be extended to 10 years from its current five.

What may or may not be of concern, industry spokespeople say, was a reference to a plan to “update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes (OPS) for tax purposes.

It could be nothing, they told International Investment, or it could be industry-changing, as occurred in 2015, when it was announced that there would be a new “Pension Age Test”, which mandated that schemes could not be considered for UK pension transfers if they permitted pension scheme-holders to access their pension funds before the age of 55. When this new rule took effect, HM Revenue & Customs stunned the UK and international pension transfer industry by ruling that all but one Australian scheme failed to meet the new criteria, thus removing some 1,653 schemes from its list for that country. An earlier crackdown, in 2012, which had to do with QROP schemes not being taxed thee same as Guernsey pensions were, removed all but three Guernsey QROP schemes out of what had been more than 300.

“It will be interesting to see what the updates are to the OPS criteria,” John Batty, of Isle of Man pension transfer specialists Boal & Co, said on Wednesday.

“As always, the devil will be in the detail.”

Stewart Davies, group chief executive of Momentum Pensions, which accepts UK pension transfers into its Malta, Isle of Man and Gibraltar schemes, said the government’s announced intention to update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes “could mean several things” for the industry.

Among them, he said, could be a plan to “enhance criteria” relating to capital and liquidity for ROPS trustees and administrators, along the lines of the current UK capital adequacy regime, which he said he would “welcome, but would require cross border cooperation amongst regulators”.

Green: ‘I welcome the plans’

Nigel Green, the founder and chief executive of deVere Group, issued a statement on Thursday praising the plans to tax pension income from overseas schemes in the same way as a UK pension would be, for anyone who is UK resident, saying that he “welcome[d]” the government’s plans, “as they will help ensure that QROPS [qualifying recognised overseas pension schemes] are not misused and/or mis-sold”.

Green added: “QROPS are designed to provide an income in retirement for those permanently living outside the UK, or those who are planning to do so, as well as to offer all the many associated financial benefits of having an HMRC-recognised pension scheme based in a jurisdiction outside the UK.

“I welcome this move to update the QROPS rules.”

Green said he also supported the “suggested tightening” up of the eligibility criteria for overseas schemes to be considered acceptable by HMRC for UK pension transfers, saying it would help to boost those jurisdictions which set and enforced “the stringent requirements demanded by HMRC”.

Welcome leveling of playing field

Adam Benskin, one of the founders and a director of Strabens Hall, a London-based wealth manager with international clients, said he and his colleagues “welcome the measures announced in the Autumn Statement aimed at limiting the potential misuse of QROPS”.

He added: “There is little need for most UK pension holders to move their fund pots offshore, and the move to level the playing field, through changes to the tax system, should discourage UK citizens from unnecessarily moving their pension funds beyond the safety net of [the] UK regulatory framework.

“This is an important step, as pension schemes operating outside UK law can lay heavy fees and commission on the individual.

“We embrace any move by the government that promotes financial clarity, and safeguards the interests of British investors.”

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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