Increasing numbers of UK expats, the globalisation of the employment market, currency volatility, tax issues and tighter financial regulation are behind a growth in QROPs as a pension solution, it is claimed.
A Qualifying Recognised Overseas Pension Scheme (QEOPS) is an overseas pension scheme that meets certain requirements set by HMRC, the UK’s tax office. A QROPS can receive the transfer of UK pension benefits without incurring an unauthorised payment and scheme sanction charge.
Those who use a QROPS tend to be expats who already have a pension within a scheme approved by HMRC. The QROPS does not have to be established in the new country of residence thus allowing greater flexibility and choice of scheme provider.
The QROPS rules were changed in April 2012 and pension schemes have to meet these new conditions. This resulted in the removal of most Guernsey based schemes from HMRC’s list of approved schemes.
Since then Gibraltar has emerged as a leading base for schemes and it has agreed a number of schemes after it passed an amendment to its Income Tax Act 2010 last month.
Malta is also looking to provide more schemes. It has been an approved QROPS jurisdiction since the end of 2009 and Malta’s Inland Revenue recently published new guidelines for QROPS.
Under QROPS rules, those leaving the UK on a permanent basis can transfer their pensions to an overseas scheme and retain their UK tax benefits after a holding period of just five years, provided the new scheme can demonstrate that at least 70% of the fund will be used to provide a pension in retirement.
‘People living offshore often wish to sever their links with the UK for regulatory and tax reasons and transferring accrued UK pension benefits to a QROPS helps them do this,’ said Alan Reynolds, technical director of Gibraltar provider London & Colonial.
‘There are many valid reasons why people may want to transfer or consolidate their pensions into a QROPS and the fact that Gibraltar is part of the European Union and therefore protected by EU legislation is giving comfort to advisers that Gibraltar is unlikely to be challenged by HMRC going forward,’ explained Reynolds.
Currency volatility is also driving business to QROPs as those retiring clearly want their pensions to be paid in their local currency. L&C is looking at offering QROPS in currencies other than sterling and euros.
Recent research published by New Dawn Consultancy has also identified immigration to the UK of foreign workers as creating a secondary market for QROPS. These foreign workers are likely to accrue UK pension savings while in the UK but once they return to their home state they will want to be taxed at local rates, especially where there is no double taxation agreement with the UK.