Gary Smithson - Expat Pensions Adviser - HMRC apply more changes to QROPS

1.         Brief Summary

·      The use of Guernsey as a QROPS jurisdiction is no longer possible

·      This does not affect existing clients who have completed their transfers from the UK into a Guernsey QROPS

·      There are other QROPS available elsewhere for those who have not yet taken action

2.         Background

Following my post on 22nd March 2012, some further notifications by HMRC have clarified a few issues relating to QROPS.

3.         Re-Cap of Budget 2012

There were a few changes imposed by HMRC in the March 2012 Budget, although very little affects our clients. The only notable difference is noted below.

From 6^th April 2012, a QROPS trustee must inform HMRC of any payments made to a member for 10 years after a transfer was made into the QROPS. Typically, the only payments made to you (as the member) will be your “Pension Commencement Lump Sum”, which is 25-30% of the fund value, or any pension income you take. Of course, neither can take place until age 55.

Some of the countries that provide QROPS services made changes to their own tax laws to ensure ongoing compliance with all new rules.

The new changes would then result in a new published list of QROPS, to be made public on HMRC’s website on 12^th April 2012.

4.         QROPS Listings

Much to the whole industry’s surprise, a few jurisdictions that were previously very active in offering QROPS services, were not on the list published on 12^th April 2012 (http://www.hmrc.gov.uk/pensionschemes/qrops.pdf ).

Of particular note was the exclusion of any schemes based in Guernsey.

There are a few reasons why this may have happened, most notably the lack of Double Taxation Agreements (‘DTA’) that exist in Guernsey. The likely fear HMRC have here is the resulting possibility that people can receive their pension free from any income tax.

Curiously, even where a DTA exists, clients could receive their pension without having to pay income tax. For example – if someone has a Malta-based QROPS and lives in Singapore; Malta and Singapore have a DTA, and therefore Malta will pay the pension without taking tax. The client then accounts for income tax in Singapore, which for foreign income, happens to be zero!

5.         What the exclusion of Guernsey means for existing Guernsey QROPS clients

HMRC have specifically stated that any clients with a Guernsey based QROPS already in place will not be affected by the removal of their scheme from their QROPS list. Therefore, there is no change for existing clients, as long as all transfers are complete. However, no further UK schemes can be transferred into their Guernsey QROPS.

6.         Options for new QROPS clients

I have already researched the market for viable QROPS alternatives, and to date, Malta and Hong Kong appear to be the most favourable.

As a result, if someone has not yet used a QROPS to house their UK pension monies, they can still do so using one of these jurisdictions.  Most commonly, the reasons people consider this transfer are as listed below: -

1.     Removes the requirement to buy an annuity at retirement age (typically annuities although guaranteed, are considered poor value for money and will not return capital on death)

2.     For Final Salary schemes, where the income is guaranteed but on death there is potentially no-one who will receive anything, the ability to pass their fund to their family (also note point 4)

3.     Most UK schemes have a very poor choice of investment funds therefore potentially stifling growth, whereas by moving, the investments options available widen enormously and can include other currencies

4.     A potential removal of the 55% tax charge that can apply to UK pensions in the event of death whilst in receipt of pension

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Gary Smithson - Expat Pensions Adviser - UK changes to QROPS released

The draft regulations I wrote about last week have been confirmed by Wednesday's UK Budget, with the actual rules and guidance notes being published immediately on HMRC's website.

The action required for QROPS holders depends largely on where the QROPS is based. For many, nothing needs to be done. For example, if you have a QROPS in Guernsey, you will have to do nothing because the lawmakers in Guernsey are effecting changes in their tax system to ensure they fully meet the new rules.

Here is a very brief list of the changes: -

HMRC right to information - extension to ten year reporting

From 6th April 2012, QROPS schemes must notify HMRC of any lump sum and/or pension income paid to a member if it is paid within ten years of the transfer in of a UK scheme.

Of course, QROPS have only been available to most since 2006 and so this rule catches anyone who is, or will soon, be paid from their pension scheme.

So by way of example - a client completed their transfers from the UK to a QROPS in 2010. If he receives any income before 2020, whether he is overseas or not, it will be reported to HMRC. After 2020, if he remains overseas, no reporting is required.

Note that if someone returns to the UK then all payments made will be reported to HMRC. This has always been the case.

New Zealand - Pensions Abuse

From 6th April, no transfers can be made to New Zealand QROPS, until they change their rules to comply. The main area they will need to change is how much income people can take. There are many cases of people in New Zealand schemes taking all of their pension scheme as a one-off lump sum, which goes very much against the spirit of UK law. As of 6th April, HMRC have made this impossible.

It is also worth pointing out that anyone who has done this could face difficulties with HMRC in the future. We will wait and see.


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Gary Smithson - Expat Pensions Adviser - Changes to QROPS

1. Background

HMRC issued some proposals in December 2011 that affect all QROPS globally. HMRC invited comments during a consultation process that ended on 31^st January 2012. We expect these changes to be announced formally in the UK Budget on 21^st March, effective from 6^th April and the Bill passed by July 2012. 

Of course, there is no guarantee that this will happen, however a set of guidelines were accidentally posted (and removed within half an hour) on HMRC’s website on Wednesday 14^th March 2012 which confirm all the points in the original proposals.

2. Why the changes?

As iFS has advised all clients, UK pension schemes have one fundamental purpose. That is, to provide the member with an income for life. In the event of the member’s death, then they will also provide an income or lump sum to their beneficiaries.

Regrettably, some advisers and scheme administrators have promoted the use of QROPS to take out much larger sums and in some cases, members have taken their entire pension scheme. HMRC has pursued some of these individuals for a tax charge of 55% on such sums drawn.

A large part of these reforms have thus been aimed at stopping this practice entirely and will ensure that some jurisdictions can no longer offer QROPS schemes, for example, New Zealand.

A second reason is that HMRC have been surprised by the vast sums being transferred out of the UK Pensions arena into QROPS. This figure stood at a total of GBP 1.4 billion at the end of 2010. The fact they are surprised when they impose a tax charge of 55% on death is in itself a surprise but nevertheless, it may be that they expect these changes to reduce the outflow of monies from the UK.

I suspect that all that will happen, is that everyone who transfers to a QROPS will now be forced to use their pension scheme correctly, and still be able to benefit from reduced (or nil) tax on death.

3. What are the main changes?

1. 1. All members of the same QROPS must be treated equally.
2. 2. Secondly, the ‘reporting period’ will be changed from 5 to 10 years.

In some countries, pensions law differentiates between local and non-local residents. If a scheme/country still has this difference on 6^th April 2012, we expect them to be de-listed from the QROPS listing.

Currently, a QROPS trustee must inform HMRC of all benefits paid to scheme members if the member has been outside of the UK for 5 tax years or less. Under the new rules, they must report to HMRC for 10 tax years from the date of transfer. This change will apply to existing members.

4. How this affects Guernsey 

Guernsey has been incredibly active and swift in dealing with these proposed changes and have been able to make changes to their own laws in order to comply, allowing the schemes themselves to change their scheme rules to ensure compliance from 6^th April.

The States of Guernsey met on 6 March 2012 to consider, amongst other matters, an amendment to Guernsey Income Tax Law which would, in short, allow for the continued provision of QROPS pension schemes from the island (post 6 April 2012), by creating a new form of Guernsey Pension Scheme which will meet QROPS qualification criteria as set down by HMRC in their 6 December proposals. 

In particular, it allows existing Guernsey QROPS to adopt the new regime thus meeting HMRC’s new Condition 4.  This Condition requires the equal tax treatment of benefits paid from schemes for both Guernsey residents and non-residents.  This is not currently the case, as Guernsey residents pay 20% income tax on benefits paid from their plans, whereas non-Guernsey residents may be exempted and have benefit payments paid gross.  Without the new pension regime HMRC proposals would prevent Guernsey from providing compliant QROPS product within the context of the current Guernsey Income Tax Law after 6 April 2012.

Once passed by the Guernsey Government, the new income tax law amendment, will allow for continued compliance, and should become law on 27 March 2012.

Due to the swift change to Guernsey’s legislation, their schemes are able to change their rules to comply with the new provisions, in time for 6^th April 2012.

Therefore, members do not need to do anything at all. The only change that will apply is the reporting requirement noted in Section 3.

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Gary Smithson - Expat Pensions Adviser - Effect of QE2 on UK Pension Scheme Values

Very interesting article from Reuters on how Quantitive Easing will adversely affect values of UK pensions.


If this plays out, transfer values from Final Salary schemes are likely to reduce over the coming years. If transferring is of benefit, consider it sooner rather than later.

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http://uk.reuters.com/article/2012/03/08/uk-pensions-qe-idUKBRE82700720120308

Gary Smithson - Expat Pensions Adviser - PENDING QROPS CHANGES

HMRC issued draft regulations and guidance notes in December 2011, which are expected to be included in the UK Budget on 21st March 2012 and effective from 6th April 2012.


There are a few changes proposed, most notably: -


• The use of QROPS to access 100% of your UK pension will no longer be possible
• QROPS providers must report back to HMRC on activity for ten years after transfer, rather than for the first 5 years of non-UK residency as was previously


These are not in my opinion, onerous changes and if anything, should clear some of the confusion about what can and can’t be done with QROPS. As I have said since 2007 in dealing with QROPS, they are to be treated in the same way as UK schemes – an income for life being the primary function. And of course, with the added tax benefits of QROPS, they remain incredibly attractive to non-UK residents.


Some jurisdictions must make amendments to their existing arrangements to comply with other features of the draft regulations, such as Guernsey. On 9th March 2012, Guernsey’s tax legislation should be changed to ensure ongoing compliance.


The simple facts are that QROPS are here to stay and should be used for legitimate purposes for those who are overseas. At least with these new regulations, all schemes should be on a level playing field.




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