Your Industry  

A taxing question of Rops and pension freedoms

This article is part of
Guide to advising overseas clients

A taxing question of Rops and pension freedoms

One of the biggest bugbears for delivering advice to expatriates is the constantly evolving world of recognised overseas pension schemes, made no less complicated since the UK brought pension freedoms into effect in April 2015.

Over the past nine years, qualifying recognised overseas pension schemes (Qrops, now known as ‘Rops’) have been the centre of regulatory and tax attention.

Several jurisdictions took a lax approach to Rops rules, allowing funds being taken out contrary to the rules and enabling some unauthorised operators to put people into unsuitable schemes. As Marilyn McKeever, associate director, private client, for Berwin Leighton Paisner explains, “Certain companies and jurisdictions used Rops as a way for members to extract the whole fo their pension funds without paying the UK tax due.”

This forced HM Revenue & Customs to crack down on such jurisdictions, affecting both the legitimate operators as well as the illegitimate ones, and causing providers and advisers to rewrite their rule books on what is, and what is not, permitted any longer, and where.

Some of the tightening itself caused investor detriment, leading to legal challenges, with previously qualifying schemes suddenly being made non-qualifying. In 2013, one group action by Qrops investors in 2013 saw HMRC admit a humiliating defeat in a High Court challenge after investors in a Singaporean scheme were put at risk of a tax-take because of HMRC changes.

In 2008, HMRC purged 200 schemes in Singapore, 300 in Germany in 2012 and suspended its whole Rops list on 17 June 2015 until its reissue on 1 July. Before 17 June, there had been 1653 Australian Rops and 787 Irish Rops on HMRC’s list. After the cull, this dropped to just one qualifying Australian scheme and 56 qualifying Australian schemes. In total, 3037 global Qrops schemes were dropped in 2015.

“The effect of the regulatory forcus on Qrops/Rops has restricted the availability of international pension products as a whole”, Jason Porter, director of Blevins Franks says. “HMRC has consistently reappraised the rules of what constitutes Rops, and which schemes across the jurisdictions meet the criteria.”

How does a Rops work?
■ The Rops is an overseas pension scheme that meets certain requirements set by HM Revenue and Customs.■ It can receive transfers of UK pension benefits without incurring an unauthorised payment and scheme sanction charge.■ A Rops can receive transfers from UK registered pension schemes.■ It can offer greater investment flexibility for expatriates but the Rops must be regulated.■ A Rops cannot pay out more than a certain percentage of the funds as a lump sum; the balance is to be paid out as a pension.

Pension freedom and choice

But while the world of Rops was undergoing change across the globe, the UK itself was changing its pension system, enabling people aged 55 and above complete access to their pensions.

To make sure people were not at risk of being targeted, however, the UK government and regulators issued strict rules to prevent inappropriate or fraudulent advice being given.

In June 2015 the Financial Conduct Authority published its ‘Proposed Changes to our Pension Transfer Rules: Feedback on CP15/7 and final rules’. In this - among other things - the regulator dictated that any transfer out of a safeguarded rights scheme must have independent financial advice, from an adviser with a suitable pension transfer qualification, where the value of that scheme was £30,000 or higher. @Image-603a71c9-dfa8-4595-99e8-23343e9473cf@