Australian scheme latest to halt transfers amid clampdown

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Australian scheme latest to halt transfers amid clampdown

An Australian pension scheme has become the latest to tell advisers to halt transfers of UK tax-sheltered savings for individuals moving to the country, as a result of a recent crackdown in the wake of new retirement freedoms.

BT’s SuperWrap Superannuation Fund, now referred to on HMRC’s registered overseas pension list as Retirement Wrap Superannuation Fund following a recent update, recommended advisers withhold transfers from UK funds as a “precautionary measure” until it can confirm its status.

An email from the scheme stated that following the letter it received from HMRC, immediate action was taken to confirm that SuperWrap remains a ‘Qrops’ by following two options.

A first option outlined was that the scheme will liaise with the Financial Services Council in Australia, alongside other organisations that offer Qrops, to approach HMRC directly “to seek an exemption from this condition for Australian Qrops”.

The second option was to confirm whether Australian superannuation and tax law permits the scheme to change its rules, so that members will only be able to access their Qrops funds after reaching age 55, or on the grounds of ill-health.

The email states: “We understand that a consistent approach is being considered by some of our competitors who also offer Qrops.”

This news follows the revelation by FTAdviser that more than 20 ‘Kiwisaver’ pension schemes based in New Zealand, which accepted transfers of UK tax-relieved savings, dropped off the official list of recognised overseas pension schemes late last month.

At that time, FTAdviser understood many would have themselves asked to be de-listed in light of HMRC’s enforcement of a pension age test, which requires schemes to assert savers are not able to access funds before the age of 55 in line with UK law.

Schemes in a number of jurisdictions, including Australia and Ireland, are thought to be affected where local laws allow early access in particular circumstances. Transfers to schemes that fall foul of the rules could be subject to 55 per cent unathorised tax charges.

Frank Mulcahy, private wealth adviser at Australian firm Standford Brown, said: “BT has a significant Qrops business, so what it does will set the standard for the rest of the market. It has gone public on their options, but the matter affects all Qrops funds in Australia.

“The real challenge for superannuation funds in Australia is that if that they amend their trust deeds to restrict access to Qrops components, what date will they make the trust deed change effective?

“If they back date to 6 April is that acceptable to HMRC? If not does this mean they are not considered Rops on 6 April?”

He pointed out that this may mean that Australian funds may need to de-list and reapply for Rops, having significant tax implications for members that have transferred since 6 April who may face the penalty.

“This whole affair brings into question the credibility of the Qrops system and whether it can be relied on by individuals or pension trustees globally,” said Mr Mulcahy. He said the clampdown has effectively killed off the pension transfer market to Australia for the moment.

“It has made the over 1,700 Qrops funds ineligible overnight and Australian funds will not accept any further transfers until this matter is resolved. There is real dismay here that the HRMC is now deciding to enforce the pension test rules on Australian funds without any consultation or warning.”

He also said that in practice Australia provides only very limited access to superannuation prior to age 55 and limited to small amounts, adding that HMRC is treating Australian Superannuation funds as early release schemes, which is not the case.

Geraint Davies, managing director at Montfort International said: “It seems that HMRC are taking a tough line and non-compliance and UK schemes need to be very aware of what’s compliant and what’s not.”

Update: This article was amended after publication to correct a reference to the BT scheme having been removed from the HMRC list.

ruth.gillbe@ft.com