Important QROPS Changes
Important changes came into force on April 6, 2012 affecting the way QROPS plans operate. The changes were originally announced in December 2011, after which there was a short consultation period for customers and industry professionals to contribute to the formation of the new rules.
The changes were deemed necessary because some QROPS plans had been marketed as a means of pension busting – encashing the full value of the plan. HMRC were clearly unhappy with this, as it ran counter to both the spirit and letter of the original legislation. QROPS were intended to allow UK expatriates to exercise their freedom under EU directives to move their pension savings across Europe’s borders, and effectively to take control of their pension planning and secure their retirement. Clearly, HMRC also had to consider the scenario whereby someone who had successfully busted their pension, might one day return to the UK penniless and become a financial burden on society.
The new rules essentially state that a QROPS plan must not offer its members benefits which are not available to local residents using local plans.
The consultation period appears to have been a cosmetic exercise, because the updated legislation as enacted shows no significant change from the original draft. Since April 6 HMRC’s implementation of the new rules has been stringent, and jurisdictions such as Guernsey, which believed it had successfully brought its own legislation into line with the new requirements, nevertheless found that most previously-approved Guernsey QROPS schemes were delisted.
It is important to point out that people who hold a QROPS plan set up in Guernsey prior to April 6, 2012 will not be affected and can continue to operate their QROPS plan as before.
Guernsey reformed its legislation to comply with the new requirements, but HMRC appears to have taken objection to the fact this was done specifically to comply with the new rules. Leaving aside the question of how you are supposed to comply if you cannot alter your own procedures, for the time being, the result is that new Guernsey QROPS cannot be established by anyone other than Guernsey residents. Guernsey is working hard to open its plans to non-residents again, and an update will appear on this site when that becomes possible.
QROPS plans established and run through Malta continue to be available as before, and offer a secure EU-based option for expatriates wishing to transfer their funds. Malta has the added advantages of a long-established pensions industry, and existing double-taxation treaties with both EU and non-EU countries, thus removing most of HMRC’s concerns that people would be able to avoid tax completely on their retirement income.
It is not the intention of HMRC to destroy QROPS, quite the opposite, HMRC wants to make sure everyone plays by the rules. QROPS have an important role to play in retirement planning for expatriates, and established correctly and administered properly, they can play the major role in ensuring financial security in the future.
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