QROPS firms move to Malta as market rise predicted
Changes to age-related benefits and falling gilt yields likely to force more pension savings offshore, advisory firm says
A recent HMRC clampdown on the overseas pension market has prompted an overhaul of legislation by some jurisdictions and an exit by others at a time when the schemes may be eyed as a way to augment potential returns.
In late July, Malta published new guidance on qualifying regulated overseas pension schemes (QROPS) in order to clarify its position regarding tax compliance as the jurisdiction raises its profile in the market.
The island country has seen the number of QROPS providers based there increase dramatically in the past few months, with many relocating from Guernsey after the industry there was all but shut down by HMRC. In April, the Revenue clamped down on the market by striking more than 300 schemes off its list of approved schemes.
While Malta is booming and making efforts to build a positive image in QROPS, some are deciding to bow out. The Qatar Finance Centre, a designated finance area in Doha, decided to pull out of the market because of uncertainty over how the market will develop in the next few years.
After news of Qatar’s exit, Jersey announced it was shelving plans for a QROPS offering because its draft legislation did not meet the new UK rules. Jersey has not ruled out an overseas pension offering entirely, but also would not say what form this would take.
But Nigel Green, chief executive of deVere Group, the international advisory firm, says low annuity rates and cuts to age-related benefits will result in more investors than ever to move their money into a QROPS at a time when they are being placed under intense scrutiny.
“I think people should be able to take advantage of the opportunitiesand move their pension where they want to,” Green says, adding, “It’s their own money at the end of the day, so it’s their choice.”
The government’s 2012 Budget announced that those aged 65 or older would no longer be eligible for age-related income tax allowances from 2013 onward. While some groups warned the clawback would be unfair to pensioners on fixed incomes, others predicted the net effect would be negligible. The Institute for Fiscal Studies says pensioners were likely to lose on average £60 pa of their income from 2014 under the new legislation.
Green says it is the UK government’s responsibility to encourage people to keep their money in the UK. But given the tax rates on pension savings in some jurisdictions is significantly lower than the UK, he concedes the government may be facing an uphill battle.
Nevertheless, he says there are some situations where QROPS have been abused, raising some schemes in New Zealand as an example.
At one point it was possible to shift a pension to a QROPS in New Zealand and withdraw all of the money at once, Green says, adding this is not in the spirit of what a pension is supposed to be.