Our Head of International Pensions continues to analyse the UK's Pension Freedom movement and its effect on QROPS. This time: where does the change leave QROPS jurisdictions?
In the run up to April, all eyes are being turned to the new UK pensions legislation coming into force regarding "Pensions Freedom", but there is also change in the QROPS industry that needs to be looked at.
In December 2014, HMRC published three draft regulations
relating to QROPS; these were open for "consultation"
until 16 January and will take effect from 6 April 2015.
One of the draft regulations, "The Overseas Pensions Schemes
(Miscellaneous Amendments) Regulations 2015" is worth taking a
closer look at.
This regulation amends the definitions of an "OPS"
(Overseas Pension Scheme) and a "ROPS" (Recognised
Overseas Pensions Scheme). The intention is to bring QROPS into
line with the Flexible Pension Regulations coming into force in UK
post-5 April, whereby
UK members will effectively be allowed to draw up to 100% of
their fund, 25% PCLS and the residual at marginal rates of income
tax.
Moving forward, a QROPS will meet the OPS conditions if it is in an
EEA state or if there is a body in the
jurisdiction which regulates management of pension schemes
and the pension benefits are payable no earlier
than the minimum pension age (currently 55).
There appears to be no definitions in the regulation themselves or
in any accompanying guidance notes to explain what "regulates
management of pension schemes" actually means. We will have to
wait and see. Suffice it to say, one would expect it to mean that
pensions are a specific "Regulated Activity" in the
jurisdiction. Where does this leave non-EEA jurisdictions that do
not have a Pensions Regulator?
There is also a minimum requirement to have an active TIEA (Tax
Information Exchange Agreement) with the UK. Read more here - the section about TIEAs not in force
leaves some questions open.
Whilst
QROPS have new regulations coming into force on 5 April, very
little seems to have been done to look at the
QNUPS regulations, which will almost certainly lead to
confusion amongst advisers as to the definition of a QNUPS and an
OPS which could require advisers to re-look at existing
structures.
It has long been said that a QROP is a QNUP, but a QNUP is not
necessarily a QROP (Guernsey continued to sell QNUPS after being
de-listed for QROPS). Why is this important? Quite simply, only a
QNUP is exempt from IHT under the Statutes. A QROPS only gets an
IHT exemption if it also qualifies as a QNUPS. This is a potential
problem for the non-EEA jurisdictions as explained above.
Fortunately, Malta qualifies under all the requirements and there are no grey areas. For certainty and tax compliance, Malta ticks all the boxes as the "Jurisdiction of Choice" for QROPS and QNUPS.
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.