When the British government introduced QROPS, (qualifying recognised overseas pension schemes) back in 2006, they did so perhaps ill advisedly or at least with a lack of sufficient public consultation and forward thinking. It is only now that offshore financial advisers are really pushing the schemes that flaws are starting to be found in the underlying concept of QROPS, and the government is thinking of legislation changes and a crack down on the sale of these so-called ‘offshore pensions.’
So where does this leave those who have already transferred their onshore pension pots into QROPS on the supposedly ‘good’ advice of their financial adviser? In this article we issue an offshore pension update and warning for those potentially affected and those considering their overseas pension options…
QROPS seemed too good to be true – an offshore pension scheme that could give significant taxation and flexibility benefits to those who qualified for the investment scheme. An offshore pension policy particularly attractive for those retiring abroad to tax friendly nations such as Cyprus, and an offshore pension that could get around the requirement to buy an annuity at the end of the pension investment term. And it seems that maybe QROPS really were too good to be true, and now that the government is seeing the reality of millions of pounds worth of pension savings which have been given UK tax relief leaving the UK for good, they are beginning to wonder if perhaps QROPS legislation is a little too lax.
Singapore is the first offshore jurisdiction to feel the pinch of the government’s QROPS squeeze. Because of its tax friendly treatment of estates at death and because some with QROPS in Singapore could have avoided income tax upon the maturity of their funds, the British government has determined that the jurisdiction does not fulfil the criteria to be considered acceptable for the establishment of QROPS and the receipt of QROPS benefits. So, on May the 27th the British government removed Singapore from its list of acceptable jurisdictions for QROPS. What this potentially means for those who have already moved their pension schemes to Singapore is unclear. The worst case scenario is that policy holders who have now effectively moved their pension into a non-qualifying scheme could be hit with up to a 55% tax bill for the tax relief they enjoyed before they moved their funds from the UK.
It’s highly likely that those who invested before the 27th of May will be protected retrospectively – but there is no guarantee of this fact. It is also possible that those who have funds in QROPS in Singapore can move their money again or the fund managers can apply to have the fund re-registered elsewhere. However, there are no guarantees at all and at the moment the situation is very unclear. For those who are thinking about QROPS, they may well be better off waiting until the British government has thought a little more about what it takes for a jurisdiction and a scheme to be considered qualifying. For once it is not a case of advisers mis-selling, it is more a case of the British government going back on its word…again. If in doubt – seek regulated, qualified financial advice. Please note, this article does not constitute advice.