Welcome to International Advisor

Individuals who hold their money in custodial banks through an overseas pension scheme, such as a QROPS or QNUPS, could be putting their money at greater risk than they realise.

The depositor compensation schemes of major overseas pension jurisdictions such as the Isle of Man, Malta and Gibraltar, stipulate that they do not cover deposits held on behalf of a trust or retirement scheme. There is also limited protection in New Zealand where a voluntary depositor compensation scheme has largely come to an end after it was introduced in response to the banking crisis of 2008.

But in Malta there is a clause which states that, if the assets held in the trust are identifiable as belonging to an individual, then each investor can claim up to €100,000 if the bank goes into liquidation. The Isle of Man Financial Supervision Commission also confirmed that a nominal sum of £20,000 can be paid to a trust as a whole, as compensation.

The board of the Guernsey Banking Deposit Compensation Scheme said a QROPS established as a retirement annuity trust scheme (RATS) would be entitled to compensation up to £50,000. However, this payment would be made to the whole scheme - not to individual beneficiaries.

The spokesperson said: “The [Guernsey Banking Deposit Compensation Scheme] Ordinance makes clear that the trustee of the RATS would be the qualifying claimant, so it is correct that the scheme limit per claimant takes no account of the number of beneficiaries. The whole concept of the scheme, however, was designed to protect ordinary members of the public without the benefit of financial advice.

“This might well apply to private RATS, which typically have only one principal beneficiary in any case. Any individual in such a RATS would thus benefit from scheme protection for both his own personal funds and any local deposits within the RATS. Commercial RATS with more than one beneficiary will have licensed firms managing the assets; while scheme coverage per beneficiary might be lower, these firms are not expected to use the scheme as a substitute for their own credit assessment on the banks they use.”

Meanwhile, Roger Berry, managing director of Guernsey-based QROPS provider Concept Group, said: "The detail of the Guernsey depositor compensation scheme is rarely if ever questioned, presumably because funds received on transfers are rapidly invested. If a new member or their adviser had concerns it would be entirely possible for the Trustees to open an account with other banks in other jurisdictions. The account does not have to be a Guernsey one if that provides comfort to members or their advisers."

While funds are not often held in bank accounts by trustees for extended periods, concerns are mounting about the susceptibility of large financial institutions to events in Portugal, Italy, Ireland, Greece and Spain.

Note: this story was amended on 5 Aug, 2011. The article originally stated that the Guernsey depositor compensation scheme does not cover deposits on behalf of trusts or retirement schemes. This was incorrect – Guernsey QROPS are covered by the Guernsey Banking Deposit Compensation Scheme. However the maximum compensation payable is £50,000 per scheme, not per individual scheme member.