Originally published in International Adviser, QROPS supplement, September 2011.
Peter Niven, Chief Executive of Guernsey Finance, looks at how the Island has created an environment which helps QROPS business flourish. This is to the extent that Guernsey is recognised as the pre-eminent jurisdiction for QROPS and related business and the Island is taking all necessary steps to maintain that good reputation.
"The way to gain a good reputation, is to endeavour to be what you desire to appear," mused the classical Greek Athenian philosopher Socrates.
This enigmatic figure may be credited with being one of the founders of Western philosophy, but the above quote attributed to him neatly encapsulates Guernsey's approach to QROPS.
The island has created an environment that is particularly friendly to QROPS business. The long-standing nature of its finance industry has helped build a centre with significant infrastructure and expertise for supplying a diverse suite of products and services to a global client base. This includes a wide range of QROPS providers, offering clients real choice in terms of type of service and cost levels.
The local authorities have been proactive in ensuring that Guernsey schemes continue to be approved by HMRC. The Guernsey schemes offer a variety of benefits, including the option to withdraw a lump sum of up to 30% tax-free. The island was one of the first jurisdictions to introduce regulation of trust businesses, while on-island providers have developed and implemented a voluntary code of practice, and Guernsey received extremely positive assessments earlier this year from both the IMF and OECD.
These factors mean it has become the leading jurisdiction for QROPS and related products. However, we are not resting on our laurels but taking every possible step to ensure that the island continues to hold this pre-eminent status in the future. We will be maintaining our good reputation.
The foundation of Guernsey's modern finance industry can be traced back to the early '60s when a clutch of merchant banks established operations on the island. During the subsequent 50 years, Guernsey has established itself as a leading international finance centre. This heritage has helped build an industry with significant infrastructure and expertise for providing a wide range of financial products and services to clients around the globe.
Today, Guernsey has a finance industry with notable breadth and depth. There is a banking sector of 38 licensed institutions holding total deposits of £114bn ($186bn); a captive insurance industry that is the largest in Europe and fourth in the world; a funds sector with total business valued at more than £260bn;an investment management and stockbroking sector with assets of more than £75bn and a fiduciary sector of 150 full corporate licensees with more than £350bn worth of wealth and assets in trust and company structures.
The fiduciary sector has been a mainstay of our finance industry during the past five decades. As a result, the island accumulated a wealth of infrastructure and knowledge in the trust sector, and therefore it was ideally positioned to take advantage of developments regarding overseas pensions and in particular QROPS.
For example, Guernsey already had a large number of licensed fiduciaries employing staff with experience in administering trust and pension schemes. Indeed, the island has had a bespoke personal pension regime, including Retirement Annuity Trust Schemes (RATS), for more than 25 years. Having this sort of track record is of practical benefit in terms of establishing an appropriate framework, but it also offers significant comfort to investors, as does the fact that all our pension schemes are approved by Guernsey's Director of Income Tax.
Comfort and choice
The Guernsey Income Tax Office has in the past and continues to take a positive approach to working with HMRC. This stance has been extremely important in ensuring that Guernsey schemes continue to retain HMRC approval. The security and stability which this offers is of significant comfort to clients.
The island was also one of the first jurisdictions to introduce an effective licensing and supervision system in relation to trust administration services and company management. Rather than the trusts themselves, it is the businesses that manage and provide fiduciary services that are regulated. Investors can take comfort from knowing that the firms administering the schemes are subject to on-site inspections.
Most of the local QROPS providers are members of the Guernsey Association of Pension Providers (GAPP) and from earlier this year committed to its voluntary code of practice, which is available to view at www.gapp.gg. Guernsey was the first jurisdiction to take such an approach and this illustrates the importance the island places on consumer confidence in the jurisdiction.
Indeed, it is worth highlighting that funds placed in Guernsey QROPS are covered by the Guernsey Banking Deposit Compensation Scheme. There is a maximum payout of £50,000 per qualifying claimant and a QROPS with multiple beneficiaries will only benefit from a single claim on the scheme.
However, it should be emphasised that this is more generous than what is on offer from some of our closest competitor jurisdictions, and in any case, usually the trustees will fully invest the monies and therefore very little will be held on deposit in a bank. Of course, the trustees have a fiduciary duty and will exercise their professional judgment on placing cash balances with the relevant institutions in the most appropriate manner.
Investors also benefit from the fact that there is a growing range of Guernsey QROPS providers – from the large, multinational players to local, independent boutique operations – offering increased choice in terms of type of service and cost levels.
These providers are supplemented by a network of professional services, including tax, legal, accounting, audit, investment and actuarial advisers.
In addition, our providers offer schemes with major advantages for clients, including the option to withdraw a lump sum – up to 30% tax free. The Guernsey Government approved an increase from 25% to 30% in April, backdated so that in essence it came into effect from 1 Jan, 2011.
Clients using Guernsey can also be assured that the island is in the very top tier of international finance centres. In January this year the IMF commended Guernsey's high standards of financial regulation, supervision and stability, along with its robust criminal justice framework. The ratings that have been achieved by Guernsey are among the highest awarded to any jurisdiction.
In addition, Guernsey was within the first wave of territories placed on the OECD 'white list' at the conclusion of the G20 summit in London, April 2009. In January, the OECD's Global Forum endorsed Guernsey's commitment to tax transparency and exchange of information.
The island has signed Tax Information Exchange Agreements (TIEAs) with 27 other jurisdictions. Also, from 1 July this year, local financial institutions moved to automatic exchange of information, as part of equivalent measures the island has adopted in relation to the EU Savings Tax Directive (EUSTD).
Guernsey has provided the conditions that allowed QROPS to flourish on the island. There are a variety of service providers offering schemes with a suite of benefits for clients and they are supported by the industry and government authorities, who take a proactive approach to ensure that the island continues attracting QROPS business.
We are committed to taking the steps necessary for Guernsey to retain its status as the leading jurisdiction for QROPS, or, in the philosophy of Socrates, maintain our good reputation.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.