Contrary to what the polls predicted, the UK voted to leave the European Union. So how will this affect the QROPS and QNUPS markets?
At this point, commenting upon the economic forecasts or trying to second guess the currency and investment markets is futile, but I can comment upon how I see the UK's European Union exit affecting the QROPS and QNUPS markets.
In 2006 legislation was first introduced; the self-certification of Overseas Pension Schemes able to receive transfers from UK "relevant transfer funds" without an "un-authorised payment charge". This was primarily done to free up HMRC and PSO from the voluminous amounts of paperwork they had to deal with in individual applications.
It has always been possible to transfer your pension fund abroad; it was just very time consuming and costly. By the way, all UK pension funds set up since 2006 are also on a self-assessment basis. At the time the legislation was written, HMRC never expected QROPS to become a 'commercial business'. The QROPS industry started to grow in 2007 with various jurisdictions and Trust Companies applying for 'reference status'. As HMRC saw the market develop, they tightened up on what were initially 'fairly lax and badly drafted, rules and regulations'. This culminated in the removal of certain jurisdictions over the years that either had lax regulatory oversight or whose domestic pension legislation did not correspond closely enough with those of the UK.
I believe that this will continue, and I would not be surprised to see one of our larger Commonwealth countries removed from the list in the next few months.
However, I do not believe that a repeal of the various Statutory Instruments starting with SI206/2006 is on the cards. The QROPS regime was not, as some would have you believe, developed to accommodate the EU only (Malta only joined this market four years later, in 2010) and I do not believe that with the UK opting out of the EU, this will change.
Emigration from the UK to other EU member states may become logistically more difficult; I am not sure that those governments will want to deter the British expat from living in their country and spending their money there. Also, we must remember that British expats do not just emigrate to the EU.
The clients for whom a QROPS is the right financial planning tool, should continue to seek independent regulated advice, and I am confident that the solutions will remain in place. For those with clients already in a QROPS, there is no panic, but they may wish to re-visit their portfolios on account of the changing investment climate.
On QNUPS, the outlook is a little more difficult to predict. Statutory Instrument 51/2010, exempting overseas pension scheme from IHT was, in part bought in to comply with EU Law. For those UK resident and domiciled people who have been sold a QNUPS thinking that this is a way of avoiding IHT, they may be sorely disappointed. For those who have set up a QNUPS as a pension replacement vehicle, and can evidence the reasoning behind this and that they have taken qualified advice, should be safe.
I fundamentally believe that Malta is still, and will remain, the "jurisdiction of choice" for the vast majority of clients. Malta's pension legislation, regulatory oversight and tax system ensures that it meets not just the letter of the legislation, but also the spirit of it, and pension funds established there will still meet the requirements to be recognised as Oversea Pensions Schemes within UK legislation.
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