Overseas pensions in Australia and New Zealand could lose QROPS status after a letter sent by HM Revenue & Customs forced all schemes to ensure that policyholders can only access benefits before the age of 55 in the same circumstances as a UK pension.
The letter, dated 17 April 2015, asks scheme operators to ensure that the country in which the scheme is established acts to prohibit the payment of benefits before age 55 unless the member is retiring due to ill-health, in line with UK pension rules.
Another option given to scheme operators to meet the “pensions age test” is confirmation that the scheme rules do not allow for benefits from funds that had UK tax relief to be paid earlier than age 55, unless the member is retiring due to ill-health.
The letter is backdated to 6 April 2015, when fully flexible access was introduced on Qualifying Recognised Overseas Pension Schemes to bring them in line with UK pension schemes. This puts transfers at risk of a 55% unauthorised payment charge.
The letter will come as some concern to QROPS operating in Australia, which do not meet such requirements due to allowing benefits to be taken before the age of 55 in cases other than ill health such as “serious financial hardship”.
Similarly, KiwiSaver scheme providers that have been granted QROPS status in New Zealand can currently currently not accept UK pension transfers and are prevented by the KiwiSaver Scheme Rules from confirming to HMRC by the 17 June reply-by date that they comply with the test.
Solutions
Paul Davies, director at Global QROPS, which has an office in Australia, said schemes operating in the country will need to adjust their trust rules to be able to meet the requirements of the new letter.
“Currently, Australian schemes do not meet these requirements, but all the major schemes in the country are aware of this,” he said. “There are two solutions to this issue; either there will be an industry-wide resolution which will be put together very shortly, or each individual QROPS will need to change their rules. I am pretty confident that the industry will come up with a solution.”
He said that a worst-case scenario would be that schemes will no longer able to operate as QROPS.
Roger Berry, managing director at QROPS provider Concept Group, said: “Australia is a jurisdiction which historically could avoid the age 55 rule, but now it has been made “across the board” Australian schemes will need to change their rules to restrict access to benefits until members are 55 if they wish to meet the QROPS rules set by HMRC.
“The difficulty is the conflict with local rules. If a jurisdiction has access to benefits before age 55, say because of financial hardship, then technically that doesn’t meet HMRC’s QROPS requirements.
“It may be necessary for the managers of these schemes to create specific schemes that are QROPS compliant to receive transfers in from the UK and leave their more flexible schemes without QROPS status. That might be the best solution to keep all members happy.”
