This policy statement was delivered to the judge on the 12 July but as yet has not been made public. It is possible this delay could be a sign of a major shake-up in the way QROPS will be operated.
Regulation changes of this kind have occurred in the past, the most substantial of which was the removal of Guernsey as a valid QROPS jurisdiction last year causing the “de-listing” of more than 300 schemes.
Michael Brinksman, editor of Which Offshore’s online offshore finance publication, expressed his concerns over HMRC’s handling of the situation: “This shocking negligence has highlighted the need for greater transparency in the QROPS market and more governmental advice for those looking to move abroad.
“Too many offshore pension schemes are being sold by advisers who don’t possess the expertise to be a truly reliable source of information. The judge’s request for clarification and review from HMRC only serves to confirm that this lack of transparency is causing a problem for many expats.”
Here we speculate on what impact HMRC’s new review may have, from the best case scenario all the way to the worst possible outcome.
1. The QROPS program is cancelled all together
When considering the amount of hassle maintaining this scheme seems to have caused HMRC over the years, it’s not beyond the realm of possibility that they scrap the scheme all together. Whether this comes in the form of such drastic re-branding that the scheme is left unrecognisable or simply as an annihilation of the scheme all together, the potential earnings from all those future unauthorised pension payments must have crossed the HMRC bosses’ minds.
2. HMRC start charging providers of QROPS large sums to maintain their QROPS status
One way HMRC could control the large numbers of QROPS would be to impose charges on providers to maintain their QROPS status. This would put QROPS providers in a position where they would either have to pass this cost along to their customers, resulting in lower returns, or end their involvement with the QROP scheme all together. This would drive out many of the smaller firms and make the whole situation much less complicated and much more centralised. It would also make HMRC’s life easier from a management perspective, and would ensure savers only dealt with established and reputable institutions.
3. HMRC change the amount of savings a QROPS provider must set aside to provide the saver an “income for life”
Instead of making the scheme more unattractive to providers, they may aim to make it more unattractive to savers. One way they could do this is to increase the minimum level which must be set aside to provide savers with an income for life, which is currently set at 70%. If this percentage was higher, then savers would be unable to withdraw large lump sums, something many expats need to do to deal with their initial set-up costs.
4. Absolutely nothing, HMRC could simply restate their aims.
HMRC is not technically required to do anything at all beyond publish a “review” of their policies. This would force HMRC to justify their policies in the public domain and may provide additional clarification for confused pension holders, but doesn’t necessarily force their hand into making any decisions on policy revisions.
5. By being more selective in the way they designate institutions as QROPS providers
If HMRC became more rigid in the way they designated offshore pension schemes as QROPS they would have to spend less time dealing with issues such as those raised in the recent group litigation. A lower number of schemes will also allow HMRC to form lasting and reactive relationships with providers, ensuring misunderstandings happen far less often.
Whatever has happened, and let’s not forget that it has already happened, we won’t know more until HMRC’s statement is made public. What is already clear, however, is that many foreign investment institutions and offshore savers will have to rethink their strategy in the coming months.
