Australian pension schemes could no longer meet the compliance definition to qualify as a registered overseas pension scheme after a letter sent by HM Revenue and Customs backdating new regulations brought in following pension access reforms.
The letter, dated 17 April and seen by FTAdviser, was sent to overseas schemes and backdates regulations to 6 April. Rules for qualifying recognised overseas schemes, or Qrops, were changed to ensure access rules were in line with those brought in in April under retirement freedoms.
HMRC states it is seeking confirmation from the schemes that they remain complaint with the rules. Failure to do so could mean transfers in are treated as unauthorised payments at hit with a retrospective 55 per cent tax charge.
It asks for specifications that either the country’s law prohibits access before the age of 55 or that the scheme rules have been amended to ensure they do not allow funds to be withdrawn before members reach this age unless due to severe ill health, in line with laws in the UK.
Australian pension schemes no longer meet this definition, according to Geraint Davies, the founder of overseas pension adviser Montfort International, who told FTAdviser under-55s can also be paid their funds in Australia if they are suffering financial hardship.
Mr Davies said that it was unlikely many or the larger schemes in particular, such as the super-annuation schemes into which many ex-pat Brits have transferred, would amend rules affecting thousands of members to appease a small group of non-nationals.
He said: “The rules of Australian schemes have to change - if they don’t change then these are no longer Qrops because they don’t satisfy the rules. If the trust deed of the Australian scheme wasn’t amended before the 6th April then payments are unauthorised in the eyes of HMRC.”
James McLeod, head of pensions at AES International agreed that the majority of the Australian schemes which are currently listed as Qrops in are huge domestic pension schemes whose status for UK tax purposes status is of “barely secondary” concern.
“The fact these schemes are Qrops is almost incidental, with them having been registered to satisfy the needs of a very small client base. Therefore we see no real possibility that these schemes will amend their trust deeds in order to comply.
“Anyone who has transferred since [6 April] could face charges of up to 55 per cent... particularly as HMRC has now amended the wording of its Qrops list to place more firmly responsibility for checking whether a scheme meets the requirements on the transferring scheme, the adviser and the end client.”
FTAdviser has analysed the list of over schemes published by HMRC and found 1,670 Australian schemes which would be affected by the rules change. This represents around 40 per cent of schemes on the list.
Mr Davies added: “Due to the rules surrounding Australian preservation ages, you would not be allowed to take your money if you were born after 30th June 1960 before the age of 60. You can’t transfer the money back to England unless there has been a mistake.
“It’s designed to catch people out and it will dramatically reduce the amount of Qrops on the list.”
Mr McLeod said, however, that some smaller schemes designed specifically for ex-pat emigrants may not be caught out.
He explained: “It’s not clear how many of all Australian Qrops will be affected by this – each scheme is individual, and some may already comply if, for example, an international group has tried to make the terms of its schemes for its expat employees broadly similar across the globe.
“What is clear is that each scheme will need to check – this will obviously in some cases be no more than a quick confirmation of compliance, but in others schemes may need to modify their Ts and Cs if the scheme is to continue as a Qrops.”
ruth.gillbe@ft.com