In Monday’s draft of the Finance Bill, HM Revenue & Customs (HMRC) announced that from April 2017 it will require all recognised overseas pensions schemes (Rops) outside the EU to be approved by a local regulator in the country where it is based or face being struck off the tax office’s list.
However, schemes in Norway, Iceland and Liechtenstein are exempt from the requirement.
The new condition will replace the scrapped 70/30 ‘income for life’ rule requiring Rops outside the EU and other qualifying countries to earmark 70% of their funds to provide members with an income for life.
The removal of the 70% rule was announced in last month’s Autumn Statement as part of a broader package of reforms to foreign pensions, which includes harmonising how income is taxed and how money is taken from Rops to bring them in line with UK registered pension schemes.
‘Even playing field’
Iain Farr, group head of distribution at Malta-based Rops provider STM, welcomed the changes, explaining that it levels the playing field so Rops outside the EU can now offer the same flexible access that UK schemes have been able to do since the pension freedoms came into effect in April 2015.
“Malta, as a regulated jurisdiction and a full EU member state already provides flexi access benefits akin to a UK registered pension scheme and Gibraltar looks forward to the introduction of operator status regulations to enable it to follow suit.
“STM welcomes further strengthening of Rops legislation. These proposed changes place Rops on an even playing field with UK registered pension schemes and will reassure the UK market of the integrity of Rops providers,” he told International Adviser.
Consumer protection
Rachael Griffin, personal financial planning expert, Old Mutual Wealth, said the reforms were expected by the industry and are “potentially good news for consumers” as they may ensure greater consumer protection for Rops.
“Equalling out the tax treatment of UK and foreign pension schemes has been much anticipated. It is essential that the IHT exemptions afforded to Rops is maintained. We expect to see similar provisions on the removal of the 70% rule for IHT exemptions for Rops,” she said.
Meanwhile, David White, partner at Isle of Man-based The Qrops Bureau, said most existing schemes should continue to be recognised as overseas pensions by HMRC as most will comply with one or more of the new conditions set out on Monday.
“If there is no scheme regulator the scheme may still pass the regulatory requirements test if it is established in an EU member state (other than the UK), Norway, Liechtenstein or Iceland.
“HMRC are just making some fairly minor changes to bring Rops in line with UK pensions and to try and close opportunities for tax avoidance, in particular because the 70/30 requirement is being removed,” he told IA.
