Last week International Adviser, reported that a paragraph within a note published by HMRC to accompany the Bill, suggested QROPS providers will be required to re-test a client’s pension against the lifetime allowance (LTA) after it has been transferred from a UK pension.
However, this is disputed by Jon Greer, pensions technical manager at Old Mutual Wealth, who said, in fact, the clause simply ensures QROPS will be able to take advantage of the new flexibility available to UK pensions from April next year.
He said: “The reference in the Pensions Flexibility note published by HMRC caused some concern that there would be a further test of a person’s lifetime allowance and might therefore use up some LTA.
“However, what they were referring to is the rule which is currently in place but is being slightly amended to help QROPS members to receive the types of benefits that UK registered schemes will receive from April.”
Greer explained when a person transfers his pension to an overseas scheme, known as benefit crystallisation event eight (BCE8), the person currently uses up some of their LTA. For example, a person transferring £1.25m to a QROPS would use their entire LTA.
However, the new clause will mean BCE8 is disregarded for the purposes of calculating the available LTA and will therefore enable QROPS members to access uncrystallised funds pension lump sum (UFPLS) under a QROPS in the same way as those in UK registered schemes. This change was needed as it is a requirement that there must be LTA available for those wanting to take a UFPLS.
Greer did note however that last week’s Bill did suggest there will be increased reporting requirements for QROPS providers, but at this stage it is not known what these will be.
It is anticipated the Government’s Taxation of Pensions Bill will receive Royal Assent this year, thereby giving providers at least a few months to prepare with a solid framework.