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.

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