Local legislators, lawyers and accountants are working on changes to the jurisdiction’s pension legislation that will enable it to offer QROPS to non-Jersey residents for the first time.
The plan to enter the third-country QROPS market is being seen as a challenge to Jersey’s neighbour and historic rival, Guernsey, which in just over four years has built a significant industry out of the management and administration of QROPs.
Officially Jersey is declining to comment. However, sources report that proposals are at an advanced stage, with a working party currently in the process of putting together the legislation necessary to amend the island’s existing pension structure.
“If everything goes without any hiccups, it [the new QROPS law] could take effect as early as January 2011,” said a source familiar with the situation.
QROPS, as the transferred UK pensions of people who permanently leave the UK are called, offer a number of tax, investment and general flexibility advantages over UK-domiciled pensions, though are intended only for people who intend to leave Britain for good.
These qualifying recognised overseas pension schemes, as they are formally known, arose out of a raft of changes Britain made to its pension regime in 2006.
Some QROPS industry observers say that Jersey is likely to trump Guernsey’s QROPS regime in respect of the tax-free lump sum available, by providing for a 30% withdrawal, rather than 25%, as is the case in Guernsey. This is because 30% is the amount Jersey currently permits Britons to take who bring their pensions with them when they move permanently to Jersey
The Isle of Man also offers a maximum 30% tax-free lump sum, but taxes pension income, something Guernsey schemes for non-residents do not. Jersey is believed to be planning to adopt a similar system to Guernsey in this respect.
Issue of tax
Another unknown for now is how, if at all, Jersey intends to tax the non-Jersey resident individuals who transfer their pensions to into these new Jersey QROPS.
At present, UK earners who move to Jersey and bring their pensions with them are taxed at 20% on their pension income, as are those who move to Guernsey. However, Guernsey’s legislation for third country QROPS is designed to be ‘tax neutral’, that is, it is designed to enable the owners of the pensions to pay tax in their country of residence, and it is expected Jersey will follow this model.
This would turn the heat up on the QROPS industry in the Isle of Man, where pension benefits are now taxed at 20%, up this year from 18%.
125 Jersey QROPS
Jersey already has a significant number of QROPS for a country of 91,000 people, given that only Jersey residents are eligible to make use of them.
HMRC lists 125 Jersey QROPS on its website, which compares with 212 in Guernsey, where, as mentioned, they have been set up mainly to receive and administer the pensions of people who have left the UK to live in a third country. Hong Kong has 11, Malta three and Slovakia four.
QROPS experts say this reflects the fact that Jersey designates as QROPS a range of pension funds that may be for as few as one person, or which are the occupational schemes of certain Jersey businesses, as the names of some of them (Jersey Farmers (Trading) Union Ltd Retirement Benefit Plan) suggest.
Close Asset Management is one company in Guernsey’s QROPS business that already has a Jersey QROPS, which it operates for Jersey residents. Rex Cowley, head of marketing, says that if Jersey does go ahead with changing its law, “we will obviously open up our Jersey scheme to international residents as well. So as an organisation we will basically have a turn-key solution for Jersey straightaway, [and] our clients will get a choice between Guernsey and Jersey.”
Boal & Co managing director Gary Boal, whose Isle of Man-based company has more than 50 Isle of Man QROPS schemes as well as a Guernsey-domiciled master-trust scheme, said he is not fussed about the potential competition.
“The big difficulty is that once you transfer a pension to Jersey it’s very difficult to move it on from there, if ever you need to," Boal said.
"Jersey hasn’t been at the game in relation to pensions [very long], and others are far ahead. There is a lot more to a good QROPS than the ability to pay gross.
"Worried? Actually, I’m encouraged, as it will add to the pressure on the IoM authorities to fix the Isle of Man’s pensions tax regime. If this doesn’t do it, what will?"