In a statement published on Thursday, the UK Treasury said it will “update the conditions that foreign pension schemes must meet to get UK tax relief on contributions and transfers, by removing the requirement for 70% of transferred funds to be used to provide the member with an income for life.”
The changes are likely to take effect from April 2017, although the exact details will be announced in the Finance Bill on 5 December.
For an overseas pension scheme to be recognised as a Rops in certain jurisdictions the scheme has to satisfy HMRC that they provided an “income for life” with 70% of the UK transferred funds, explains Paul Davies, director of bdhSterling (formerly Global QROPS), an advisory firm specialising in Brits moving to Australia.
“This meant that the scheme could not pay flexible benefits in line with the UK pension freedoms because 70% of the fund was not flexible,” he told International Adviser.
Meanwhile, John Batty of Isle of Man-based Boal & Co, an actuarial consultancy firm specialising in international pension schemes, believes the UK is trying to “equalise the treatment of EU and non-EU Rops”.
“This is certainly an interesting time for the Rops markets, we’ll have to wait and see for further details next month,” he said.
As a result, Rops registered in certain non-EU jurisdictions such as Gibraltar and Guernsey, which have previously been banned from offering flexible access, will now be able to do so once the 70% rule is scrapped.
At present, only Malta and Australia-based Rops offer flexi-access, while Gibraltar and Guernsey Rops have restricted access until the age of 55.
Davies welcomed the UK’s move to remove the 70% rule, saying that it was “only fair” in light of the UK’s pension freedoms giving people unrestricted access to their retirement savings.
“Since April 2015, flexible benefits have been available for UK pensions (i.e. the government relaxed the UK pension rules for cashing out UK money purchase pensions) so I guess that it is only fair to extend this to all Rops – by not continuing to impose restrictions for UK funds in overseas schemes when the UK funds in UK money purchase schemes have no restrictions.
“Flexibility had been available in Australia and Malta for their Qrops already from earlier this year (i.e. Australia was not jurisdiction where the 70% income for life rule applied),” he said.
He added that the 70% restriction affected New Zealand Rops, after HMRC imposed the rule from April 2012 “as a measure to prevent UK pension members, living anywhere overseas, from using New Zealand’s flexible pensions”.
UK Rops overhaul
The announcement is latest detail to emerge on the UK government’s plans to change the way overseas pension schemes are approved and taxed, published in a document following the UK chancellor Philip Hammond’s Autumn Statement.