Personal PensionMar 27 2015

Ex-pat savers to be barred from pension freedoms

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Ex-pat savers to be barred from pension freedoms

All ex-pat savers who have amassed pension savings, which have benefitted from UK tax relief but are held in overseas schemes registered with HMRC, will effectively be excluded from accessing their fund in April, while the UK tax authority establishes replacement safeguards.

A statutory instrument passed in the House of Commons earlier this month reversed a previously stated policy intention to allow qualifying registered overseas pension schemes from mirroring the flexibilities being granted in the UK from next month.

The instrument retained the ‘70 per cent rule’, which requires this percentage of a person’s fund to be ringfenced to provide a lifetime income. HMRC has said it is working on a replacement for the rule.

Although the rule does not affect European Union member states, only Malta has so far passed primary legislation to allow free pension access. FTAdviser has been told by one expert that even schemes there will be unable to use the freedoms until permission is allowed by the country’s financial services regulator.

In order to utilise pension freedoms without compromising the UK tax relief, both HMRC rules and the pension legislation in the relevant jurisdiction must allow open access in the same way as in the UK for these schemes.

Matthew Brincat, senior associate at Maltese law firm Ganado Advocates, explained that the amendment in the pension rules requiring Qrops operators to observe new withdrawal rules was in place from the 1 January, but operators would need to go through a transitional process in June.

“Once the transitional process is over or once the Malta Regulator allow operators to use the new provision, then the Malta operators may make use of the recent amendment. Only at that stage, if UK pensions laws allow it, Maltese operators may be in a position to allow flexible drawdown.”

Joe Bannister, chairman at the Malta Financial Services Authority, said that any scheme approved by HMRC has to follow HMRC rules and that the best route for Malta was to ringfence Qrops and any transfers from UK approved schemes.

“Everything will work outside of that,” he stated. “Obviously we will be monitoring that they follow UK rules. We will ensure that transfers from the UK will follow the UK rules as they did before.”

A senior executive at the financial regulator within one jurisdiction, who asked not to be named, told FTAdviser the recent announcements have come as a surprise, as Qrops are designed to replicate as closely as possible the arrangements for personal pension schemes in the UK.

He said HMRC and the Treasury are looking to ensure that the tax to be applied by different Qrops jurisdictions on flexible drawdowns in excess of the tax-free pension commencement lump sum does not encourage activity or marketing with which they would be uncomfortable.

In essence, the authorities are keen to ensure that lower tax applying in some countries does not disproportionately encourage withdrawals.

Adam Wrench, head of product and business development at Qrops provider London and Colonial, said it was a “complete surprise” to hear these changes, as the firm was fully expecting Qrops to be brought in line with the rest of the UK.

He added it was his understanding that this decision applies to all Qrops jurisdictions worldwide, noting that they are simply refusing to allow Qrops to adopt UK style pension freedoms at the present time. “We can only hope that this is a very temporary measure and that a more level playing field will be created in the very near future.”

For the Isle of Man, Simon Pickering, head of retail financial services for the Department of Economic Development, said that the island has its own pension legislation, so it would not be affected by the new pension freedom rules about to come in in the UK.

He added: “The island would have to consider new primary legislation if it wishes to follow the UK stance on pension freedoms.”

Michael Ashton, senior executive at Gibraltar Finance, said: “We are quite surprised at having gone through the process of putting out draft consultation etc. and getting it pulled back.

“It seems to us that from 6 April we are going to be excluded from offering a fully flexible drawdown option.”

ruth.gillbe@ft.com