The latest list of Qualifying Recognised Overseas Pension Schemes (QROPS) was published on UK HM Revenue and Customs (HMRC)’s website on 12 April 2012. This list has seen a number of schemes disappear, especially from Guernsey. What happens if your clients transferred their UK pension funds to a QROPS that met the QROPS rules on transfer but no longer appears to?
Staying with the current provider
HMRC have confirmed there is no effect on the UK tax relieved pension funds that have been transferred to the scheme providing the scheme was a QROPS at the time of the transfer. The scheme continues to be a pension scheme under the laws in the country or territory in which the scheme is established. In effect, the schemes are ring-fenced as “Pre 6 April 2012 QROPS”.
Contributions made to the scheme which are not UK tax relieved can also continue to be made as non-UK tax-relieved funds are not impacted by the whether the scheme is a QROPS or not under the new QROPS regulations introduced by HMRC.
Further transfers from UK pensions will not be allowed due to such a transfer being regarded as an unauthorised payment and would attract an unauthorised payment charge of 55%.
Any pension benefits (PCLS or Pension income) taken from the overseas pension scheme within 5 years of your client leaving the UK (or if they returned to the UK) would still require reporting to HMRC. However, the new 10-year reporting requirement will not apply, if the overseas pension scheme is no longer regarded as a QROPS as at 6 April 2012 when the new reporting rules take effect.
The tax treatment does not change for a pre 6 April QROPS and after five complete tax years from your client leaving the UK, the benefit payments only need to meet the local pension rules in respect of the PCLS and level of pension income; and they no longer need to be included in the client’s UK tax self-assessment. A lump sum paid to your client’s family on their death would also not attract a member payment charge of 55% after the five complete tax years.
If your client still has UK tax relieved pension funds – what options do they have?
It is possible to transfer UK tax-relieved pension funds to a QROPS provider who meets the new QROPS regulations and the scheme/jurisdiction is not under review by HMRC.
This may mean that a client has a “Pre 6 April QROPS” pension pot and a post 6 April 2012 QROPS pension pot. The client may choose to consolidate the QROPS pots by transferring to one QROPS provider. This will however mean that the new 10-year reporting requirements will apply to the whole pension fund. In addition, exit charges may apply for transferring from the existing overseas pension scheme. Details of these charges should be available from the overseas pension provider. The effect of these charges should be considered carefully before proceeding with a transfer.
In terms of the underlying investment it should be possible to in effect transfer that investment with you. In order to achieve this, the current provider will, as part of the transfer, assign legal ownership of the underlying product to the new QROPS provider. The current provider may make a charge for this.
However, where the underlying asset is for example a Royal Skandia bond the change of ownership will have no cost implications. Royal Skandia however would need to see evidence of the change of ownership and receive confirmation of any new appointment in terms of investment adviser/manager.
This article was produced by Skandia International’s product law team. To find more information visit the website at http://www.skandiainternationalknowledgedirect.com/Retirement-Planning/QROPS.html.
