Last week, the UK government announced it will scrap a rule requiring Rops to set aside 70% of funds to provide members with an income for life, as part of a broader set of reforms to foreign pensions unveiled in the Autumn Statement.
The changes will include harmonising the tax treatment of income from such pensions and changes to HM Revenue & Customs (HMRC) “eligibility criteria” for Rops to qualify as overseas pension schemes.
The 70% rule removal could put international schemes on par with UK pensions in terms of flexibility.
Widespread pension fraud
Geraint Davies, managing director of Montfort International, welcomed HMRC plans to allow Rops based in certain jurisdictions to offer flexible access in line with the UK’s pension freedoms, adding they are a result of increased “scamming” across the industry.
“The reason for the [70%] change is all about scamming and making an easier job for HMRC."
“The reason for the [70%] change is all about scamming and making an easier job for HMRC – they have had a nightmare with the compliance processes of overseas schemes – as Canada, Australia, France and Italy have shown,” explained Davies.
Describing the measures as a money-saving exercise, he told International Adviser that the reforms are designed to drive down the costs of tackling widespread fraud among overseas pensions.
“The compliance resources HMRC have had to divert to pension transfers ex-UK has been immense.
“I would imagine the cost saving where advisers are not able to push Rops, pregnant with offshore bonds, because the UK option is superior. It will save HMRC millions and decimate the Rops market.”
“It’s abundantly clear that the process of change will take the rug from under the feet of those providers ex-UK where the often absurd logic of transferring a pension ex-UK was driven by advisers being given a sales pitch,” said Davies.
70% income for life rule
At present, only Malta and Australia-based Rops offer flexi-access, while Gibraltar and Guernsey Rops must abide by the 70% income for life rule and have restricted access until the age of 55.
This is because only EU or EEA member countries, India, the US, or a country or territory with which the UK has a Double Taxation Agreement (DTA) that contains exchange of information and non-discrimination provisions, can qualify as a Rops.
Those outside this remit are required, at the time of the transfer, to earmark at least 70% of the funds transferred to provide the member with an income for life.
