Shares in STM Group, the AIM-listed, Gibraltar-based provider of UK recognised overseas pension schemes (ROPS, formerly known as QROPS), fell by more than 22% on Wednesday, in the wake of the Chancellor’s budget speech, and by 11am today were down another 6%.
Investors were responding to Philip Hammond’s surprise announcement that a 25% charge would be introduced on pension transfers to overseas schemes. As reported, the news was met with shock by many in the overseas pension transfer industry, although some said they had expected such a change, but thought it would come post-Brexit.
From their opening price on Wednesday of 51p, the shares fell to 39.5p by the close on Wednesday, a drop of 11.5p, or 22.55%. Today they fell as low as 31.5p, just after 8am, before nudging back above 37p after 10am. Volumes traded on Wednesday spiked significantly against recent averages.
The stock’s 52 week range has been between 30.5p and 62p; year- to-date, it has generated a loss to investors of 12.2%, and on a 12-month basis, a loss of 30.68%.
Shares hit a high in October 2015 of 71p. The new lows of the past two trading days have meant the stock is down by close to half against that high. In May-July 2014, shares traded below 20p before starting a recovery to that 2015 high, according to LSE data.
In a statement to the stock exchange today, STM acknowledged the potential impact to the Group’s business of what it said were the Chancellor’s indication of “significant charges and tax implications for some individuals considering taking out a QROPS transfer from a UK pension scheme”.
“Whilst the detail of the proposed bill is yet to be published, it would appear that those expatriate individuals living outside the European Economic Area (“EEA”) would incur a 25% exit tax on their pension fund, unless they are transferring to a QROPS in the country they are resident in.
“This change is likely to have an impact on STM’s ability to grow the number of QROPS policies it administers; however, it is not anticipated that this tax change will impact the Group’s existing QROPS business, which generated recurring revenue from annual management charges of approximately £8.4m in 2016.
“Overall, the Group’s pension business represented approximately 50% of total revenue in 2016 (approximately £9m), with annual recurring revenues representing over 90% of this figure.
“We currently anticipate that the proposed change in tax legislation will not impact all of our new QROPS new business generation.
“In particular, we believe that there should not be an impact on new QROPS applications business from EEA countries, which accounts for circa 20% of new QROPS business.
“The other 80% of new QROPS business is generated from outside of the EEA and could therefore be affected by this new charge.”
Intermediaries research to follow
The STM statement noted that intermediaries its representatives had spoken with had reported that they expected that “in certain cases, and for certain countries, their clients may still look to transfer their pension to a QROPS policy, despite this charge”. More will be known once these intermediaries have had a chance to further analyse the impact of the proposed new tax charge, the statement added.
It also noted that while the attractiveness of QROP schemes might be lessened by the new charge, intermediaries have pointed out that “they would look to promote a UK SIPP alternative”. As reported, STM acquired UK-based SIPP provider London & Colonial last year, to broaden its retirement savings offering for advisers and their clients.
“We therefore hope that an increase in new applications for our UK SIPP business may mitigate some of the impact of the new tax legislation on our ability to win new QROPS policies.”
STM said it believed its other existing revenue streams – including life assurance and corporate and trustee services provision, which represented approximately 50% of STM’s 2016 revenues – would not be affected by the proposed changes to QROPS tax legislation.
AIM listing in 2007
STM originally began as a corporate services adviser, listing on the Alternative Investment Market of the London Stock Exchange in 2007. However, its QROPS business grew rapidly alongside the general QROPS industry, after the sector was created in the wake of the A-Day pension rule changes in 2006.
At the end of 2009, STM became one of the first companies to introduce a Malta-based QROP scheme, in the wake of HM Revenue & Customs’ decision to recognise Malta as a QROPS jurisdiction at that time.
At one point, in 2012, deVere Group chief executive Nigel Green acquired a 24% stake in the company, although he later sold a large chunk of it, and it isn’t known whether he is still a shareholder.
Today, STM has trading operations in Gibraltar, Malta, Jersey, and Spain.