A lack of clarity around international transfers out of defined benefit schemes was also listed among the top ongoing issues, after yesterday saw the requirement for an annuity on UK pension pots removed, allowing for full-flexibility.
The concerns come after HMRC last month confirmed that the requirement for a non-EU QROPS to use 70% of its funds to provide an income for life was to remain “temporarily” after proposing its removal in December last year, preventing full-flexibility for the schemes. The revenue is yet to confirm when this requirement will be removed.
Due to this lack of confirmation, Gary Boal, managing director at Isle of Man-based QROPS provider Boal & Co said yesterday’s changes give QROPS holders a chance to consider whether 100% withdrawals would be beneficial for them, due to the schemes’ inherently high taxation rates.
“QROPS members need to be realistic and be very aware that, for tax reasons, flexible access may be too penal to contemplate in practice because of the adverse tax implications,” he said.
He said that Boal & Co’s average QROPS is more than 10 times the average UK defined contribution retirement pot, meaning large withdrawals would incur a large tax liability whether paid at the member’s marginal rate in the UK or in their country of residence.
“Income tax, capital gains tax and inheritance tax are all minimised by using the QROPS fund in the way it is intended, and drawing down at a sensible, long-term rate,” he added.
Clarification needed
Gerry Kelly, group finance director at Sovereign Group, said clarification is still needed around transfers from defined benefit (DB) schemes, due to ongoing discussions on how a UK adviser can work with an overseas adviser in respect of transfers into QROPS.
He said the latest consultation paper by the UK’s Financial Conduct Authority was unclear on the details surrounding its requirement for anyone seeking to transfer out of a defined benefit pension scheme to seek advice from an FCA-authorised pension adviser.
“It is unclear whether thought has been given to the provision of advice on investments,” he said. “Will this advice be provided by the UK pension transfer specialist and will it be subject to the Retail Distribution Review requirements in the UK?
“I imagine UK advisers are busily checking on their own professional indemnity insurance cover to see how they could deal with these questions. For advisers based outside the UK, they may want to consider a response to the consultation, but in the meantime this area will remain unclear.”
Despite HMRC maintaining the 70% rule, Malta-based QROPS will retain full flexibility, as they are based in the EU and has changed its local legislation to allow full flexibility.
