Guernsey’s Qualifying Recognised Overseas Pension Schemes (QROPS) industry has become a significant local employer in recent years, and for this reason, pension industry providers on the island are optimistic that States of Guernsey lawmakers will approve the proposed scheme when it comes before them for a vote on 6 March.
As reported, HMRC surprised the QROPS industry on 6 Dec with a package of proposed changes to the rules that govern how UK taxpayers may transfer their UK pensions overseas. The changes were aimed at cracking down on reported abuse of QROPS by some practitioners as well as an effort by HMRC to tighten up its oversight of the industry.
The new legislation, if enacted, would take effect from 6 April.
In its response to the proposed changes, the Guernsey Association of Pension Providers (GAPP) has said it agrees that most of the proposed changes are appropriate, but takes issue with what is known as the “Condition 4” clause, which effectively means that residents and non-residents must be treated equally in terms of tax on all QROPS scheme benefits paid.
This is where the proposed new Guernsey pension scheme, which the Guernsey lawmakers will consider in March, comes in.
As reported here on Friday, the as-yet-unnamed scheme (click here to view the legislation) would treat Guernsey residents and non-residents the same – with no Guernsey tax due on benefits paid – in order to meet HMRC’s concerns.
Currently, Guernsey, like most QROPS jurisdictions with a significant non-resident QROPS industry, has taxed its residents’ pensions but not those of non-residents, who are assumed to pay tax on their pension income in the country in which they live.
For this reason, the proposed new Guernsey pension structure does not provide tax relief on pension contributions to Guernsey residents – unlike the pension structure currently used by most Guernsey residents. This is seen as reducing the likely decline in tax revenue to Guernsey that would result from the sudden loss of pension tax income if many residents were to suddenly switch to the new, nil-tax-on-benefits-paid, regime.
Major Guernsey industry
It is not known how many Guernsey residents are employed by the QROPS industry, but anecdotal evidence suggests that it has grown considerably since QROP schemes were created as part of HMRC’s overhaul of Britain’s pensions industry in 2006, known as A Day.
As reported exclusively here last year, Freedom of Information Act data obtained by Guernsey-based Concept Group from HMRC revealed that 32% of total UK pensions transferred abroad in the first part of 2011 went to Guernsey, making it the No. 1 jurisdiction worldwide in transfers during that period, the most recent for which data is available. In terms of total transfers since 2007, it is in third place, with 10%, behind Australia (47%) and New Zealand (23%), the data shows.
Guernsey Finance chief executive Peter Niven said Guernsey’s willingness to propose a new pensions structure to accommodate the QROPS industry showed that it "recognises the importance of the QROPS industry and is prepared to act collectively, quickly and decisively to ensure that our service providers can continue to satisfy the HMRC criteria for QROPS, and thereby offer pensioners reassurance that they will have continuity of access to a compliant and competitive Guernsey product".
Isle of Man keeps schtum
The Isle of Man’s pension funds industry is understood to face many of the same concerns that Guernsey’s is, but little is being said publicly there about what, if anything, it is doing or planning to do in response to HMRC’s proposed QROPS regulation changes.
Stuart Clifford, chairman of the Isle of Man Association of Pension Scheme Providers, said this was because HMRC’s proposed changes are still “only in the consultation process”. He also declined to confirm whether the APSP had voiced its concerns to HMRC.
“At the moment our comment is exactly the same as it was before, that we’re still working with the government of the Isle of Man to review the proposals that were made by HMRC, and that we don’t believe that it makes any sense to make any comments about proposals as long as they remain that – just proposals – and it has not been confirmed that they are going to be brought into force as they were proposed,” he added.
