Riding the storm

Saturday, 01 October 2011
Article on whether qualifying recognised overseas pension schemes are a good product to be selling

In offshore investment publications, various authors have expressed misgivings as to whether qualifying recognised overseas pension schemes (QROPS) will be the next product to be missold.

These doubts come hot on the heels of the Panthera case, which is currently passing through the English judicial system, and more recently news of a clampdown on the New Zealand QROPS regime.

In May, the High Court ruled that the Equity Trust’s Panthera scheme – recognised overseas self-invested international pension (ROSIIP) – failed to meet QROPS requirements of being authorised by the local regulator of pensions, and further that it failed to allow Singapore residents to participate. Equity Trust has sought leave to appeal the judgment. The Panthera case is worrying, not least because, initially, it appeared that Singapore as a jurisdiction, and more specifically ROSIIP, had received HMRC approval as a qualifying scheme.

But headlines have since focused on New Zealand. While some New Zealand pension providers had decided to stop offering transfers to ex-UK individuals and other New Zealand QROPS providers were contemplating adopting a code of practice similar to that created in Guernsey, draft legislation published by the New Zealand authorities in August suggests that, in future, anyone joining a New Zealand- based pension scheme must be resident there or employed by a company there.

QROPS is a significant market and one that has to be taken very seriously

Clearly this will not prevent New Zealand being used as a jurisdiction to transfer UK tax-relieved funds into, but it will reduce the attraction of such transfers to schemes for individuals who do not have a genuine New Zealand connection.

Also, there is a question as to the efficacy of the Isle of Man s50c scheme, which was launched in late 2010 and underwent HMRC scrutiny for a number of months. Schemes administered under s50c of the Isle of ManTax Code allow 70 per cent of the initial transfer of tax-relieved funds to be applied to provide a pension for life while any increase in growth of the fund (after the initial transfer) can be used to make lump-sum payments. While Isle of Man schemes are now receiving confirmation of registration on HMRC’s list of QROPS providers, without explicit written confirmation of HMRC’s opinion of the s50c Isle of Man scheme, are schemes administered under those provisions any safer than the Singapore schemes that had previously received HMRC approval?

Of much broader concern could be the lack of mention, this summer, of the secondary legislation, promised in the frequently asked questions that accompanied the Disguised Remuneration legislation. This secondary legislation was due to take QROPS out of the remit of the Disguised Remuneration legislation. Without a specific exemption, there is, at least, a specific exclusion based on residence in the final legislation, which should protect those who have genuinely gone abroad, which is, of course, one of the fundamental principles of the regime.

Legislation was introduced in the summer to thwart UK tax-avoidance measures that used QROPS schemes and the workings of certain double tax agreements. Specific measures were introduced during the passage of the Finance Bill to counter situations where foreign tax is levied (generally at a lower rate) in the country of administration of the QROPS, which, under a double tax treaty, ensures no further UK tax is chargeable.

So QROPS is a positive ‘product’ for an administrator to offer, and in some ways more so now than, perhaps, five years ago. The scenarios and issues mentioned go some way to highlight how the attitude to QROPS has changed over the years.

HMRC is scrutinising the actions of those who have transferred tax-relieved funds and the actions of those to whom the schemes have been transferred. It is also clear that administrators and jurisdictions in receipt of those funds are being made to think about their behaviours and attitudes. After Guernsey introduced its code of practice for QROPS providers, it was reported that providers in a number of other jurisdictions were suggesting that similar protocols be adopted elsewhere. Given the number of individuals who leave the UK to retire abroad, this is a significant and competitive market and one that has to be taken very seriously.

When involved in a transfer into a QROPS, it is vital that the member take full fiscal, legal and pension scheme advice. This is a complex and emotive area and one where lack of attention to detail can be costly in terms of risk and reputation. Having said that, a properly transferred and administered QROPS is an attractive and flexible pension vehicle and, in a time when new business is harder to win, those who take care and take advice are more likely to succeed.

 

Author block
Right
Alison Vine

Alison Vine is Tax Director at Ernst & Young LLP.

The content displayed here is subject to our disclaimer. Read more