AUGUST 2011

In August 2011 the New Zealand Government introduced a draft Bill to Parliament, the Financial Markets Conduct Bill, which included proposed changes to the pensions legislation and hence, New Zealand QROPS.

It is expected that the Bill will be passed late 2012. Prior to the passing of the Bill, UK expats who had completed five consecutive tax years of non UK residence and then transferred their pension funds to a New Zealand QROPS were able to request a withdraw of up to 100 percent of their funds in cash.

The Bill, when passed will prevent full encashment of such funds.

DECEMBER 2012

In December last year draft regulations were published proposing a number of changes to QROPS legislation affecting schemes in all jurisdictions from 6 April 2012.

In addition to bringing an end to 100 percent  withdrawals from New Zealand QROPS forward by several months it also proposed new requirement for all QROPS to ensure that the tax treatment of benefits taken in each jurisdiction were the same for residents and non residents alike.

Whilst this did not create much of a problem for New Zealand schemes or schemes operating under EU jurisdictions such as Malta, it meant that Guernsey and the Isle of Man in particular would need to introduce new pensions legislation to meet the new QROPS requirements if they wanted to remain as QROPS jurisdictions.

And this is what they believed they had achieved until last week…

APRIL 2012

The publication of a new list of pension schemes registered with HMRC as QROPS has introduced chaos into the marketplace.  This has been primarily caused by the “delisting” of over 300 Guernsey based schemes.  In addition the Guernsey authorities have announced that HMRC are unhappy with changes in Guernsey law that had been introduced in order to meet new UK requirements for overseas pension schemes to continue to be recognised as QROPS from 6 April 2012.

So, for the moment at least, whilst Guernsey is seeking clarification and assurances from HMRC that they have not been unfairly targeted, Guernsey as a QROPS jurisdiction would seem to be dead in the water.

A similar fate has engulfed one particular type of scheme operated in the Isle of Man.

The chaotic position is not helped by the fact that the HMRC list is not conclusive evidence of an overseas pension scheme’s status as a QROPS.  A scheme may still be on the list which does not meet the new legislative requirements and other schemes not on the list meet the requirements.  The list is designed to assist not to be definitive.

Over the past few years many people have transferred their UK pension rights in to a QROPS.  The most frequent destination has been New Zealand for the purposes of obtaining an immediate lump sum. There are no implications for those who took this course of action after five complete and consecutive years of non UK residency and then received payment.

Others have transferred their pension rights to schemes in Guernsey or Isle of Man and will now find themselves (often not being aware of it) a member of a scheme which is no longer a QROPS.  This need not be a problem in that it tends to cause more inconvenience for the scheme itself than the member. The scheme has certain reporting requirements to satisfy to HMRC on deregistration and of course cannot attract new business.

HMRC has stated we should expect further changes in the Finance Bill 2013.

If you are considering a QROPS now is the time to take advice as to what the changes mean for you not least because there are some potentially very interesting consequences and opportunities open to you.

For further information about the QROPS changes, Pension Planning and long term investment opportunities please email info@prempensions.com  or see http://www.prempensions.com

Written by: Stephen Ward BA (Econ), ACII, APMI Managing Director Premier Pension Solutions. Stephen was a member of the UK Government’s Pensions Industry Working Group advising HMRC on the pensions’ legislation changes which introduced Qualifying Recognised Overseas Pension Schemes (QROPS) in the 2006 Finance Act. He is also the author of the definitive textbook on pension taxation, “Tolley’s Pensions Taxation 2011-12”

We understand that it has been suggested by others that the proposed change in legislation re withdrawals from a New Zealand QROPS could be backdated to the date the proposals were announced. This is not the case and in fact the opposite may be true as there are indications that the introduction of the changes may be delayed until after 5 April 2012.

The Finance Bill 2012 draft regulations, the notes and HMRC draft guidance which accompanied it made the UK Government’s intentions very clear and sought comments from interested parties as to whether the revised legislation in the form of the new regulations would meet those policy intentions.  Some of the contents of the drafts presented for comment contain errors not least in some of the associated forms and the draft guidance.

There is now the opportunity for the policy division of HMRC to consider the representations made and to lay before Parliament the final version of the new regulations. We understand that it is likely that this will happen during March coming into effect from 6 April 2012.  The associated complexities are such that it would not surprise us at all if there were a slight delay in implementation.

By setting out its intentions HMRC has given jurisdictions such as Guernsey and the Isle of Man the opportunity to consider changes to their domestic legislation so that QROPS established in these jurisdictions may continue to operate post 6 April.  Guernsey has published its own proposals for domestic law changes.   The Guernsey Legislature stands ready to implement those changes if need be once the final UK regulations have been set in stone.  We believe that Isle of Man as a jurisdiction is thinking similarly but its proposals are yet to be made public.

The key point here is that those who are currently members of QROPS in Guernsey or Isle of Man need have no cause for concern.  Even if in the unlikely event QROPS in those jurisdictions were unable to satisfy the relevant conditions from 6 April it would not matter a great deal.  In any event a transfer onto a compliant jurisdiction is normally pretty straightforward.

It is with great irony New Zealand as a jurisdiction is affected the most. One of the major attractions, 100 % encashment will be prevented.  However, New Zealand schemes used as a long-term investment vehicle are a beneficiary of the new rules as they meet the requirements without any local legislative changes.  In addition, New Zealand schemes will retain much more benefit flexibility than is provided by Guernsey or Isle of Man.  For many, New Zealand will remain the most attractive jurisdiction.

Other jurisdictions are soon to enter the market. One in particular intends to make quite an impact.   More on that as soon as we are able to reveal it.

For further information about the proposed QROPS changes, Pension Planning and long term investment opportunities please email info@prempensions.com or see http://www.prempensions.com

© Written by: Stephen Ward BA (Econ), ACII, APMI – Managing Director Premier Pension Solutions – Feb 2012

The intention is “to make the QROPS regime operate in line with the policy intention” - which is that “ an individual who leaves the UK and transfers their pension savings should be in broadly the same position as someone who remains in the UK with their pension savings”

The draft regulations introduce four conditions that a scheme must satisfy to be and to remain as a QROPS.  It is the second and the fourth of these conditions that introduce the changes we are referring to here.

The new conditions referred to above have the effect of:

Firstly, putting to an end with effect from 6 April 2012 the ability of long term non UK residents to transfer their pension fund to New Zealand and receive a lump sum of 100% of the fund.

As HMRC say “The Government has found that QROPS are being marketed extensively as a way of paying amounts or enabling the payment of amounts that are not allowed under UK rules (in particular 100% lump sums) once the UK tax rules no longer apply”.

This change introduces certainty of timing, as this was in effect already the subject of legislation passing through the New Zealand Parliament.

Secondly, introducing a new and unexpected provision (Condition 4) that requires uniformity of tax treatment of benefits for local and non local residents.

Using HMRCs words :

“If the country’s tax regime does not meet these conditions then schemes based in that country will not be able to be a recognised overseas pension scheme.

Looking at the system of personal income taxation of scheme benefits in the country where the scheme is established and ignoring any double taxation agreement rules, one of the following statements must be true:

1. There is no exemption from tax in respect of benefits paid to both resident and non resident members.

2. There is exemption from tax for non resident members and it also applies to resident members, regardless of whether the member is resident when they join the scheme or at any other time while they are a member. “

Ironically New Zealand pension schemes satisfy Condition 4 as there is no tax relief on pension contributions made by local residents, the fund is taxed, and there is no tax on benefits when paid out.  No tax applies either on benefits made to non residents of New Zealand so “there is exemption from tax for non resident members and it also applies to resident members”.

This however would seem not to be the case with regard to Guernsey and the Isle of Man where pension schemes differentiate in terms the of tax treatment of benefits between local residents and non residents. So as local residents would be taxed on benefits and non local residents are not taxed on benefits condition 4 under the draft regulations are  not satisfied.

No doubt there will be some serious lobbying to take place over the next few weeks to have this changed.

Other proposals in the draft regulations are concerned with, but only in relation to transfers to QROPS made after 5 April 2012, putting in place a new reporting period.

The five complete tax year rule as it relates to member payments and their taxation remains unchanged, but all the same schemes will be required to report payments made for a full ten years after the transfer takes place.

No doubt this extended reporting provision is to ensure that all schemes which are registered as QROPS satisfy the new conditions.

For further information about QROPS and Pension Planning opportunities please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – December 2011

However, it is likely, if past experience is anything to go by, that you have little or no idea about how much your UK pension rights are worth or indeed how they are invested (if at all).

If you worked in the public sector perhaps as a doctor, nurse, or teacher, then you will have a deferred pension (sometimes called a frozen pension),  in one of the UK public sector pension schemes.  No fund as such is associated with these schemes as the cost of providing benefits comes mainly from the UK taxpayer of today.

The damage on pension funds of a change from RPI to CPI

You may have read that the attempts of the UK Government to reduce their long term liability by reducing the benefits from public sector pension schemes is being challenged by strike action which will see more public servants walk off the job than has been seen for a generation.

Even those with deferred pensions have been affected.  UK pension rights are generally protected in order to preserve their purchasing power by increasing them to allow for inflation.  This inflation linking has to date been provided by way of a link to inflation measured by the Retail Prices Index (RPI).  Although it sounds innocuous, the inflation link is now against the Consumer Prices Index (CPI).   As over time the CPI is less than RPI by up to 1.5% p.a. this does immense damage to the real value of deferred UK public sector pensions.

The prospect of further attacks on UK pension funds?

The wishes of the UK Government to reduce the UK deficit will no doubt result in further attacks on UK pension funds.  No wonder that many of those who have UK pension rights but no longer live and work there have already exercised their right to take a transfer value and have transferred to a non UK scheme known as a Qualifying Recognised Overseas Pension Scheme (QROPS).

Doing this gives peace of mind and the opportunity to have control over how the pension fund is invested.  There is a large selection of QROPS available in various jurisdictions.  Some (like those in New Zealand) may allow for the immediate availability of a lump sum of up to 100% of the fund irrespective of age.  Others in jurisdictions like Guernsey and the Isle of Man offer tax free investment growth, and critically control over the timing and amount of the income you are able to take once you are over age 55.

Pass on unused funds upon death to loved ones

The icing on the cake is the ability to pass on the entirety of your pension fund after your death without any tax charges. Leave your pension fund in the UK and following your death 55% of it may be taken by the UK taxman, regardless of how long you have been a non UK resident.

For further information about QROPS and Pension Planning opportunities please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – November 2011

The financial crisis is far from over

The Greek Government is having to introduce a further round of cuts to public sector pay and pensions, and there is talk of the Greeks defaulting on their sovereign debt. Call it what you like “restructuring”, “extending term ”etc…  it will be seen by the financial markets as default.  And do not think Spain is necessarily out of the woods with a 21.5% unemployment rate and an astonishing 45% of the under 25’s being out of work.  Maybe the Spanish have had enough as small scale and peaceful protest in the centre of Madrid has grown in number to several thousand with similar demonstrations taking place in other Spanish cities including Barcelona and Valencia.

The problem of the US $14.3 trillion debt

The USA would have hit the buffers of the $14.3 trillion limit on public debt a few days ago but for a suspension of contributions by the federal government to the US equivalent of the civil service pension scheme. According to the Daily Telegraph “Timothy Geithner, the US Treasury Secretary, announced the move in a letter on Monday to Congressional leaders as he explained that the move extends the government’s breathing space to August 2 to avoid an unprecedented default on its borrowings.” Could this happen in the UK?

Ireland’s new pension levy

And in Ireland a 0.6% tax rate is to be charged on all the value of funded pension schemes and personal pension plans.  The levy will apply for four years, commencing this year, and will raise a projected € 470m annually.  Do you really believe this will be for just four years? Could this happen in the UK?

UK pension funds are massively more than those in Ireland.  Might the UK Government think about following suit as a smaller levy would not seem much at the level of the individual but would raise billions?

Silentnight

In any event UK companies can walk away from their pension obligations.  This has most recently been the fate of the hapless members of Silentnight which has dumped its liabilities in the lifeboat of the Pension Protection Fund (PPF).  This means Silentnight’s 1,340 ­pensioners could lose about a third of their pension ­entitlements.

Take control of your UK pension

Sadly it is a myth to consider your UK pension fund as being “safe”.  There are risks associated with taxation, there are risks associated with default.  The only way you can be sure of avoiding these risks is to take control.

If you are a long term UK resident we can arrange for the entire fund to be released – the ultimate control.   Or we can arrange a transfer to a QROPS or a self invested personal pension putting you in control over how the fund is managed.

For further information about QROPS and Pension Planning opportunities please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – May 2011

Many of the latter though recognise that the entire area of pension transfer advice (whether to a QROPS or not) is a specialist  field and should be accompanied by substantive technical knowledge of how the UK pension system works and knowledge of  how the pensions system works in the various jurisdictions where QROPS are to be found.  Advisers in this category are open minded enough to introduce their QROPS enquiries to us and we thank them for trusting us to assist with their clients.

Claims of offering access to all QROPS are just plain silly

There are thousands of them and most are in jurisdictions which only open their door to local residents.  So for example although a resident of Spain may transfer their UK pension fund to a QROPS in Guernsey, New Zealand, Isle of Man or Malta, they cannot transfer to a QROPS in Jersey or Australia. In fact only a tiny proportion of all QROPS are “open” to the public at large.  The real choice is from less than perhaps 100 schemes not from the entirety of the contents of the QROPS list maintained by HMRC.

Transparency of costs and references

If you are receiving advice on QROPS always ask for and accept nothing less than transparency as to costs.  Be suspicious of anything being free of charge because it will not be – instead there will be a huge and undisclosed commission lurking somewhere. The advice you receive needs to be paid for as does the QROPS provider, but you have a moral right to know to the penny what those costs are.

Think about asking for a reference from another client who has used the adviser’s services on a transfer to a QROPS.  If this is not forthcoming then vote with your feet.   Ask the adviser to confirm the level of their pension qualifications – a generalist financial services qualification will not suffice.

Importance of proper pension advice

We see many instances where people have transferred to a QROPS without receiving advice in writing.  By that I do not mean some generic QROPS summary which makes no reference to you and your existing pension rights, but a comprehensive letter of recommendation. This should set out in clear language what your UK pension  rights currently comprise, any guarantees that apply together with the current transfer value and any cost of transferring. It should then set out the comparative benefits you can expect to receive on a transfer to a QROPS and how those benefit opportunities compare with those associated with your UK pension rights.  This should be capable of being explained to you in language you understand.

Ask the specialists – Premier Pension Solutions

If you do not understand in detail what the adviser is telling you this is more than likely because he does not understand it himself. And if you ask any question of the adviser which he cannot answer but has to go away and ask a specialist – then show them the door and come to the specialists – Premier Pension Solutions.

For further information about QROPS and Pension Planning opportunities please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – May 2011

So perhaps now is the time to dust off your UK private pension and to look to maximise its value to you both now and in the future? So far as “now” is concerned, many of us chose to live outside the UK at a time when the financial environment was much more favourable.  At a time when perhaps the exchange rate was €1.40 or more to the pound as opposed to about €1.13 today.  Or at a time when the outlook for the business venture you decided to set up was based on “normal” economic conditions.

So to be blunt many expats find themselves short of cash.

It can be frustrating to be in that position when you have an asset that conventional wisdom says you are unable to access any value from until age 55 at the earliest. Alternatively, although you may be accessing value now by drawing income from your pension fund you would like the flexibility to have access to capital.

We can help you with these requirements. One possibility is by a transfer to a QROPS whilst another possibly uses a different solution altogether.

Fees are now much lower

If you looked at transferring your UK pension fund to a QROPS in the past and were put off because the fees were too expensive them we have some good news for you.  Fees are now much lower than they were this time last year – and in some instances considerably so. There is also now a wider choice of QROPS jurisdictions to choose from.

Guernsey, Malta and Isle of Man

Malta is now firmly on the QROPS “map” as is the Isle of Man with its new pensions legislation.  The Isle of Man in particular has become a serious competitor to Guernsey with a robust regulatory framework and new legislation which for long term pension investors offers a more favourable lump sum than is available elsewhere.  One IOM provider is about to break the mould regarding Trustee fees with a market beating structure.

How much is your pension policy worth?

So perhaps now is the time to dust off that pension policy or “frozen pension” statement and find out how it can be used to your benefit.  Many clients we encounter have a starting point of having little idea as to what their pension fund is worth.  Sometimes finding out can be a pleasant surprise, on other occasions less so.  If however you are rather better organised and know what your fund is worth when was it last reviewed  – if ever?

As an expat there are pension planning opportunities to you which are not available to UK residents.

Time for a spring clean

To find out more about these opportunities do contact us at Premier Pension Solutions for a pension spring clean. Please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – April 2011

What questions should I ask?

When meeting any adviser offering QROPS advice the first thing to ask about is the extent of the adviser’s professional qualifications.  Ask if they have passed the CII pensions paper known as G60 or its equivalent.  Ask for references from other clients in respect of whom they have arranged pension transfers.  Ask about fees and commissions looking for clarity and transparency.   If you do not get the right answers then walk away.

What are the main jurisdictions?

The main jurisdictions are Guernsey, Isle of Man, Malta and New Zealand.  Advisers should be able to offer a choice of QROPS from these jurisdictions and recommend the most appropriate for you based on your circumstances and objectives.

As an example, the following list will serve as an outline guide as to which jurisdictions are suitable for expats who are resident in Spain.

1.      If you left the UK before April 2006 and require an immediate lump sum then New Zealand will generally be the jurisdiction of choice.

2.      If you left the UK more recently, have a pension fund of more than £100,000 or so and have no intention of returning to the UK then Guernsey, Malta or the Isle of Man may well suit.

3.      If however you are a recent expat but may return to the UK then you may be well advised not to transfer at all or to transfer to a UK Self invested personal pension (SIPP).  If a QROPS is recommended then it crucially must have no exit charge so if you do return to the UK there is no cost for you to transfer to a UK SIPP.

4.      If you are advised to transfer to an Isle of Man QROPS ask if it is a “section 50C” scheme – as non reclaimable IOM tax arises from income received in Spain from other forms of IOM QROPS.

5.      If you are thinking about taking benefit before age 55 and are a long term UK resident then Guernsey is not the best jurisdiction for you,  Malta or new Zealand allow benefits to be taken earlier.

Sadly the quality of knowledge and advice available is sorely lacking. In some cases so much so that the client’s financial health can be severely compromised.  We have seen instances of people taking benefit having transferred to a QROPS paying tax on their income at 20% or more whereas with competent advice this could be at 2.5% or even less in some cases.

Beware also the adviser who tells you that his advice will not cost you anything as it will be paid for by an investment house.  In this instance there really is no such thing as a free lunch.

For further information about QROPS, QNUPS and other pension solutions please e-mail info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – March 2011

Usually existing private pensions are languishing in poorly performing funds, with no supervision or monitoring and in extreme cases have already been whittled away to nearly nothing because of the charges that are being extracted.   Even where people have deferred benefits in a final salary scheme, many clients just think of this as a “frozen pension” from which they will get £X a week when they retire at the age of 65.

Pension funds – the ignored asset

Yet for many this “ignored” asset is perhaps second only in value to the value of their house.  So it makes little sense to ignore it.

Maximising the outcome or value from your UK pension fund means firstly, establishing what the current value is and secondly, understanding the associated options.  For the expat the options will include transferring the fund to a QROPS.

Immediate access to cash

For the long term expat an attractive option is to release the fund as a lump sum which is available for use now.  For such clients, maximising the outcome from your UK pension fund can mean the availability of a lump sum now for re investment, to pay off credit card debts, or even to start a new business venture.

Long term investment growth

Where the fund is sizeable however – say more than £80,000 then the considerations are usually different.  Although releasing a lump sum remains for many an attractive option, we can instead arrange a transfer to a type of QROPS (generally in the Isle of Man, Guernsey or Malta) where long term investment growth is the objective. This will maximise the eventual income producing value of the fund, or ensures that as much as possible is available to pass down, tax free, to the next generation.

These are all objectives which are difficult to achieve within the framework of inflexible UK pension rights.  It is therefore hugely advantageous for expats with UK pension funds to take advice and to evaluate the options available to them.

Taking advice from pensions specialists

Of advisers in Spain we are unusual.  We are pensions experts first and foremost.  We do not see your pension fund as a source of investment monies from which undisclosed fees and commissions will be stripped out to your disadvantage.  Our charges are always clearly disclosed and transparent.  We are regulated and subject to compliance checks as a consequence. So you can be confident of the advice you will receive.

For further information about how to maximise the value of you UK pension fund please email info@prempensions.com or see http://www.prempensions.com

© Premier Pension Solutions – March 2011