1. Introducing QROPS
A Qualified Recognised Overseas Pension Scheme (QROPS) established in Malta is a pension scheme registered in Malta that has been approved by HMRC in the UK to accept transferred funds from existing UK schemes. The scheme is subject to the laws and regulations of the Maltese jurisdiction allowing contributors to enjoy the flexibility of a scheme established outside of the UK system. However, the scheme still offers a high degree of security as it must meet the high standards established by the HMRC and the Maltese regulatory authorities.
2. Establishing a QROPS in Malta
In order to establish a QROPS in Malta, a retirement scheme must firstly be created in accordance with the Special Funds (Regulation) Act, 2002 which regulates retirement schemes in Malta. This can be done by way of either a trust or a contract to the satisfaction of the Malta Financial Services Authority (MFSA). If the scheme is established by way of a trust (as is usually the case) a trustee will need to be appointed to act as trustee of the scheme.
Trusteeship is a licensable activity in Malta and the trustee of a retirement scheme will either need to obtain a full trustee licence, or a licence which would limit the allowable activity of the trustee to the administration of the retirement scheme. In either case the licence application process may be paralleled with the retirement scheme application scheme as both licences are issued by the same regulatory authority.
The scheme will also need to appoint a retirement scheme administrator. The retirement scheme administrator may be the trustee, if the latter has the relevant expertise to manage and administer a retirement scheme. Alternatively, the trustee may appoint a third party to act in this position and outsource administration of the scheme by written agreement. Where the trustee is the scheme administrator this usually reduces costs to the scheme as the number parties involved in the administration of the scheme is less.
Once the scheme is established in Malta, an application then needs to be made by the scheme administrator to the UK Board of Inland Revenue for approval of the scheme as a QROPS in light of the UK Finance Act 2008.
The UK legislation requires that a retirement scheme needs to be regulated in the country where it is established by an appropriate body that will ensure that the scheme is administered soundly in order to protect the interests of its members. The legislation also requires that the scheme is recognised for tax purposes in the country where it is established. Both of these requirements are satisfied by the laws and regulations in Malta that deal with retirement schemes.
3. Licencing Retirement Schemes>
The establishment and operation of retirement schemes in Malta is governed by the Special Funds (Regulation) Act 2002. In combination with guidance notes provided by the MFSA, this Act outlines the steps that need to be taken to register a scheme in Malta. The application for registration of a retirement scheme to the MFSA must:
- specify the nature of the scheme;
- be accompanied by a scheme document/trust deed;
- be accompanied by the applicable fees;
- contain any other information or particulars the MFSA may require.
The scheme document is at the core of the application process. The essence of this document is to provide the MFSA with an overview of the purpose of the scheme, the rules that govern the scheme, and the entities involved with the scheme. The MFSA in its guidance notes has carefully outlined what needs to be included in this document.
A retirement scheme will also need to provide for the registration of its scheme administrator and if necessary, its asset manager or custodian (these are discussed below). An auditor will also need to be appointed in accordance with MFSA requirements. In the rare case of a defined benefit schemes, the MFSA makes it necessary to appoint an actuary.
In its consideration of the application for registration as a retirement scheme, the MFSA will take into account the proposed schemes compliance with the Special Funds (Regulations) Act, the protection of investors and the general public and the reputation of Malta taking into account its international commitments.
4. The Scheme Administrator
A retirement scheme must appoint a retirement scheme administrator to perform the day to day duties of operating the scheme. As discussed above, the scheme administrator may also be the trustee of the scheme. In any case, this person needs to be registered with the MFSA under the Special Funds (Regulation) Act.
The application for registration of a scheme administrator must contain the contact details of the applicant, the prescribed fee, the nature of the applicant's business experience and other relevant experience, and any other information that the MFSA may require. This process may be expedited if the applicant already acts as a retirement scheme administrator for another scheme, or if they are already known to regulatory authorities.
The MFSA requires that a retirement scheme administrator is a fit and proper person to act in such a capacity. Such a person must always act in the best interests of the scheme and may not use the assets of the scheme for their own or any other purposes. Any interest a scheme administrator may possess in relation to transactions or proposed transactions affecting the scheme must be declared to the contributors.
5. The Asset Manager
An asset manager will need to be appointed to a retirement scheme in circumstances where the retirement scheme administrator does not have investment services expertise in-house. It is the asset manager's role (if appointed) to manage the investment portfolio of the scheme.
The Special Funds (Regulation) Act requires that an asset manager possess an appropriate licence under the Investment Services Act, or, if the asset manager is established in another EU Member State, is duly authorised to carry out portfolio investment management in that State.
The asset manager must always act in the best interests of the retirement scheme and may not use the assets of the scheme for their own or any other purpose. Any direct or indirect interests an asset manager may have in a transaction or proposed transaction affecting the retirement scheme need to be declared immediately to the scheme's contributors.
6. The Custodian
The MFSA may require the appointment of a custodian to a retirement scheme. This may occur if a retirement scheme does not invest its members' contributions in a retirement fund or funds, while at the same time not engaging the services of an asset manager. The custodian is entrusted with the safekeeping of the assets of the scheme, and to monitor the retirement scheme administrator in the undertaking of their duties. This scheme custodian needs to be registered by the MFSA.
A custodian that is based in Malta may either be a credit institution licenced under the Banking Act 1994, or an entity licenced under the Custodian of Collective Investment Schemes under the Investment Services Act 1994. A custodian established in another EU state that is duly authorised to act as a custodian in that state will also be recognised by the MFSA.
Registration will be provisional on the custodian possessing levels of business organisation, experience and expertise that the MFSA regards as adequate to undertake the role of custodian of a retirement scheme.
7. Maturity of Retirement Schemes
Benefits from a retirement scheme registered under the Special Funds (Regulation) Act can only be distributed to a beneficiary who has attained the age of fifty, but who is not yet seventy. An exception exists in cases where a beneficiary has suffered permanent invalidity or death.
Upon maturity, it is necessary for a personal retirement scheme to offer a beneficiary the option of a payout in the form of an annuity, however the benefit may also be paid out in the form of a lump sum. The details of the timing and amount of distributions are to be specified in the retirement scheme document.
By providing individuals with the ability to make the most of their retirement funds, but still subjecting schemes to a high standard of regulation, Malta is a highly desirable destination for the establishment of a QROPS within the European Union.
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.