The company has written to its distributors informing them that the Southern Star Retirement Fund will be wound up at the end of June. The company will instead focus on the local pension sector.
The letter states: “This decision was taken after a review of the scheme’s recent member expectations and the value proposition we offer.
“The directors also believe there is considerable uncertainty regarding the future of the present QROPS transfer system and have an expectation of changes being put in place by regulators which are likely to strengthen the retention requirements for members of New Zealand retirement schemes.”
The reference to “retention requirements” suggest New Zealand’s pension regulator plans to somehow tighten up rules that allow 100% of a pension fund to be withdrawn free of tax in a single lump sum.
Numerous QROPS firms promoted New Zealand domiciled schemes on the basis that all of a retirement fund could be immediately withdrawn post-transfer from the UK, known in pension parlance as ‘washing out’.
Southern Star was primarily used for this. Most of its members were expats rather than New Zealand tax-payers and for this reason, Southern Star also had relatively few active scheme members at any one time as they would quickly pass in and out.
Doing so is legal, but HMRC is known to dislike the practice, seeing it as contrary to the purpose of pension – and spirit of QROPS rules – to provide an income in retirement.
Over the past few years there has intense speculation that HMRC may try to take action against New Zealand schemes that were allowing 100% withdrawals for UK expats. Government tax investigators travelled to the country, but it is not thought any action was taken – or even could be legally because the schemes were acting in accordance with local pension regulations.
However, HMRC held talks with the New Zealand pension regulator, the Government Actuary (GA), and visited local firms, apparently to make clear its disapproval of the ‘washing out’ practice where transferred UK pensions were concerned.
International Adviser has also learned that the GA had been putting pressure on Southern Star’s trustees to close the fund. It is not known whether this is linked to HMRC intervention but the actuary is thought to have been concerned about the fact Southern Star had a predominantly foreign client base whose money was flowing in and back out of the country again.
In particular, it is thought to have been irritated by the unwelcome publicity that was being generated around New Zealand’s international pension sector as a result of such activities.
It has been rumoured that a so-called pressure group of local New Zealand pension advisers and providers had also encouraged the regulator to take action against schemes promoting the country as a jurisdiction for international pension ‘washing out’.
However, Stephen Ward, a Spain-based pension adviser and well-known – and to some controversial – figure in the QROPS sector, dismissed this speculation as “nonsense.”
Ward, who used Southern Star and is close to its management, said: “This is nothing to do with any pressure group. That is absolutely false. People have also suggested this is linked to financial difficulties, which is again absolute rubbish and the management is prepared to take anyone to court who suggests that is the case.”
He also said the closure was scheme-specific and the ability to take 100% tax-free cash was in no way at risk of being stopped. However, Southern Star’s letter and its reference to “strengthening retention requirements” hints changes may be afoot.
Ward acknowledged the contents of the letter but believes no significant amendments will be made to the current system.
The GA recently undertook a review of QROPS transfers, which included Southern Star, and its closure may be linked to the findings of this process.
Comment from David Milner, who runs Southern Star, has been sought but none had been received at the time of publication of this story.
