From April 2017 the UK government will now require all Rops outside the EU to be approved by a local regulator in the country where it is based or such schemes face being struck off HMRC’s approved list, it has warned.
“This instrument replaces the 70% rule and requires those who provide non-occupational pension schemes to be regulated in the country where the scheme is established if the scheme itself is not regulated. This ensures that where there is a regulator, then the pension scheme or the provider of the scheme, as the case may be, will be regulated,” read an explanatory note on the government’s website.
Regulation replaces 70% rule
In a draft of the Finance Bill, published on Monday, the UK confirmed it will abolish a rule requiring Rops outside the EU to earmark 70% of funds to provide members with an income for life.
At present, only Malta-based Rops offer the same flexi-access as UK pensions, while Gibraltar and Isle of Man-based Rops must satisfy the 70% rule.
The removal of the rule, announced in the Autumn Statement last month, will mean all Rops outside the EU will now be able to offer flexible access in line with the UK’s pension freedoms, introduced in April 2015.
The move was unveiled as part of a broader package of reforms to foreign pensions, which includes harmonising the tax treatment of income from such pensions and changes to HMRC’s “eligibility criteria” for Rops to qualify as overseas pensions schemes.
Pensions age test
In addition, HMRC revealed it will also change the pensions age test, which states that benefits can only be paid out of a scheme before age 55 in cases of “serious ill health”.
Amendeding the proviso, the tax office added in conditions where benefits can also be paid out in cases where it’s a short service refund lump sum, a refund of excess contribution lump sum or a winding-up lump sum.
The changes may come as disappointment to providers of Australian Rops after thousands of were removed from the HMRC list last July for failing to meet the pensions age test as they allow early pay outs in cases of “serious financial hardship”.
Wide-sweeping Rops reforms
In the Autumn Statement, the chancellor also announced plans to treat 100% of the income from a Rops as taxable – rather than the 90% of income from a Rops which is currently subject to income tax.
In addition, member payment provisions will extend from 5 to 10 years, limiting the pension commencement lump-sum to 25% of the UK tax relieved funds for 10 years instead of 5.
The Finance Bill has confirmed this is on track to go live from next April.
