The new QROPS legislation was finally published by HM Revenue & Customs yesterday, after months of speculation since an initial draft was released in December last year.
According to commentators and industry experts, the highly anticipated piece of legislation has not contained any great surprises for the industry. However, within the UK Treasury’s Budget 2012, which was also published yesterday, an additional clause has been included which some commentators suggest is a “warning shot” to those who intend to flout the QROPS legislation.
Clause 2.69, which features on page 62 of the UK Budget 2012, states:
“2.69 Qualifying Recognised Overseas Pension Schemes (QROPS) – The Government will introduce changes in primary legislation to strengthen reporting requirements and powers of exclusion relating to QROPS. They support the changes in secondary legislation published for consultation on 6 December 2011. The Government also announced that where the country or territory in which a QROPS is established makes legislation or otherwise creates or uses a pension scheme to provide tax advantages that are not intended to be available under the QROPS rules, the Government will act so that the relevant types of pension scheme in those countries or territories will be excluded from being QROPS. (Finance Bill 2013).”
According to Rachael Griffin, head of product law and financial planning at Skandia International, the clause is a way for the UK government to ensure it does not have to keep updating and revising the QROPS legislation in the coming years.
“With this clause the government is leaving the door open to say ‘if people do not play ball with how we want the QROPS legislation to work, we are going to introduce legislation next year, in the 2013 Finance Bill, which allows us to specifically exclude territories’, said Griffin.
“In short, while over the next year we are sure to see new innovations in schemes, new jurisdictions and some weird and wonderful things, the government is saying ‘fine, do that, but do it at your peril’.”
QROPS specialist Rex Cowley, principal of Newdawn Consultancy, agrees and sees this additional clause as the government flexing its muscles in a warning to those who are tempted to push the boundaries of acceptable retirement planning.
“The revisions for QROPS qualification are broadly as expected which has to be good news for the industry as it tightens up the rules of play for all,” Cowley said. “The government is also saying that, if you want to offer a QROPS it will have to walk, talk and act like a UK pension and if you step out of line, the repercussions are clear as highlighted in section 2.69 of yesterdays UK Budget. Gone are the smoke and mirrors.”
Meanwhile Gary Boal, managing director of Boal & Co in the Isle of Man, points out one reporting change in the final version is that the QROPs manager now has 90 days to file the benefit payments report to HMRC, compared to 60 days in the earlier draft.
Primary condition 4
One jurisdiction which has much at stake is Guernsey, which has built a large and reputable QROPS industry since the scheme’s introduction in the “A-Day” pension changes in 2006.
The draft legislation, published in December last year, included a new “primary condition” for schemes wanting to qualify as a QROPS. “Primary Condition 4”, as it became known, effectively meant that the current Guernsey QROPS schemes would no longer qualify post 5 April due to the different tax breaks offered to residents and non-residents of Guernsey.
In order for the territory to have a compliant pension regime, the QROPS industry in Guernsey worked closely with its government to draft new pension legislation known as 157e. After 5 April, schemes in Guernsey will be able to register under the new section of Guernsey’s pension law and qualify under the new QROPS rules.
Paul Davies, director at international pension specialist advisers, Global QROPS Ltd, said the legislation published yesterday still includes the new condition and therefore, while there is no way of knowing whether or not HMRC will ultimately approve Section 157e, it looks as if Guernsey will continue to be a viable QROPS jurisdiction post 5 April.
“There seem to be no new items from the draft legislation and guidance published in December,” added Davies.
“The key issues from this being the changes in the lump sum and income requirements by New Zealand in order for their schemes to remain as QROPS and the taxation position (on pension income payments) of resident members of QROPS for other jurisdictions, such as Guernsey.”
The Isle of Man is in a similar position to Guernsey, in that QROPS registered under its 50c pension legislation will no longer be compliant after 5 April. So far, the territory has not made any firm statement on what it intends to do to ensure a compliant alternative is available for schemes post 5 April, however it is understood representatives from the industry and government are meeting tomorrow to discuss their plans.
In addition to the introduction of the new qualifying requirements, income requirements and reporting rules, there are more stringent guidelines for UK schemes which receive requests to transfer a member’s pension into a QROPS, according to Premier Pension Solutions’ Stephen Ward.
“The guide for UK scheme administrators makes clear that they are expected to do their own due diligence on the QROPS they are expected to transfer to. It also notes the right to refuse such a transfer,” warned Ward.
“Expect delays, requests for information about the receiving scheme, and refusals to become the new norm – in particular from public sector schemes.”
However, the biggest impact of the new legislation, and the months of speculation the initial draft sparked, has been to encourage the QROPS industry to ensure it is doing all it can to provide UK tax-compliant schemes to those retiring abroad. According to many industry experts, the last-minute inclusion of clause 2.69 cements this intention.
“It is evident that HMRC clearly want QROPS to remain available for the purpose they were initially set out for,” said Geraint Davies, managing director of Montfort International.
“There was in recent months growing evidence of processes being developed to bypass the intended purpose of the QROPS rules. Going forward schemes will need to be 100% certain that they are not operating in such a way that allows benefits to be paid out in a way that exceeds UK limits. With some procedures being marketed around the world whether intentional or not to bypass UK limits – the resounding message being delivered by HMRC is do it our way or don’t do it at all. Any scheme that thinks all they have to adhere to is to meet UK’s reporting requirements needs to take immediate action in order that they comply entirely with the HMRC intentions.”