The reason some pension fund trustees are nervous is because age 55 is the earliest people in the UK are permitted to begin receiving their pensions, unless they are chronically ill.
Although this minimum age requirement has not changed, concerns began to escalate last year, after HM Revenue & Customs, the UK’s income tax authority, announced a crackdown focusing on what it calls “pension liberation” schemes, via “Project Bloom”, in partnership with the UK Pensions Regulator, the Serious Fraud Office, and other agencies.
Last October, as part of this crackdown, HMRC tightened up on its rules for registering pension schemes.
Industry eyes on Malta
A number of countries permit their citizens to begin receiving their pensions before age 55, but the current debate in the qualifying recognised overseas pension scheme industry has centred on Malta, the only mainstream jurisdiction for qualifying recognised overseas pension schemes that is both a member of the European Union and has a legal minimum age for taking one’s pension of 50.
Because it is in the EU, Malta benefits from slightly more accommodating QROPS regulations in certain areas – including that of the minimum age for permissible pension commencement – than do non-EU jurisdictions, industry sources note.
Many QROP scheme administrators with operations in Malta say there is no doubt whatsoever that people who left the UK five or more full tax years ago, and have a Maltese QROPS, are permitted to begin taking their pensions, as long as they are at least 50 years old. The Malta Association of Retirement Scheme Practitioners unofficially shares this view, according to its secretary general, Ganado & Associates senior associate Matthew Brincat.
“We [MARSP] haven’t got a [formal] policy on the matter; we have talked about it, but we don’t see it as a major issue,” he said.
Pension liberation concerns
One major QROPS provider was so concerned about the possibility that its Maltese QROP schemes might be seen by the Revenue as potential vehicles for pension liberation, however, that it took the decision – in the second half of last year – to explicitly not allow benefits from Malta QROPS to be paid before the age of 55.
Unlike its rivals in the QROPS market, the company, STM Group Plc, is a London Stock Exchange-listed entity, where it is a component of the FTSE AIM All-Share index.
STM chief executive Colin Porter told International Adviser that the company’s board took the decision even though its members knew full well that Maltese law permits people to take pension benefits at age 50, and that HMRC currently has “no power to raise an unauthorised payment charge for those who have been out of the UK for more than five years” and who choose to begin taking their pension before age 55.
Among the reasons the STM board felt compelled to take action, Porter said, was the fact that a growing number of UK pension institutions, which QROPS providers rely on to transfer UK pensions to them, were “starting to challenge whether a QROPS provider is offering the ability to get benefits before 55”.
Such institutions, he noted, have a “duty of care”, as the “existing trustees” of pension scheme members, to ensure that these scheme members are not potentially becoming involved in pension liberation.
For QROPS providers like STM, meanwhile, there is the significant concern “of potential delisting if they were seen [by HMRC] to be helping people to access their pensions before age 55”, Porter said.
"From what I understand, Project Bloom is much wider than just about tax-take, it is about ensuring that the ability to receive benefits is aligned to that of UK pension plan holders, and thus less likely to result in the individual falling back on the UK for state support in retirement.
"STM is making a clear statement as to its view of the 50/55 debate, and whether pensions taken before age 55 in Malta could be viewed as pension liberation.
“We have seen the pressure building on this issue over the last six months, and we feel there is too much at stake to take the risk of being delisted.
“The fact that a tax charge cannot be raised does not mean the transfer may not fall under the Revenue’s definition of ‘pension liberation’, and this thus raises possible delisting concerns for the QROPS provider.
“We feel that QROPS are about looking after peoples’ pensions for decades, either side of the ages between 50 and 55 as well as in between, in the best interests of the scheme member. And in our opinion, not allowing benefits to be paid before age 55 is the only way that mandate can be met.”
Malta: 'we report to HMRC'
As for the position of Malta’s authorities, it is to report back to the UK on all activity involving UK-originating pension funds, as required by the UK authorities, according to Joseph Bannister, chairman of the Malta Financial Services Authority. What the UK government chooses to do with that information is its business, not that of Malta’s, he said.
“Therefore, if anybody [with a Maltese] QROPS withdraws before [age] 55, then HMRC will know, and it is up to them to decide what action to take.
“Although our rules state you can withdraw at 50, it does not mean you can flout the [UK’s] QROPS rules.”
For some in the QROPS industry, exactly what those rules are with respect to the taking of benefits from a Malta-based QROP scheme by under-55s who have lived abroad for more than five tax years remains unclear.
Last month, a spokesperson for HMRC said the tax authority's view, stated in 2013, that “some liberation activity involves transfers to pension schemes outside the UK”, remained “unchanged”. But he declined to address specifically the case of someone under age 55 who had been out of the UK for longer than five complete tax years and was beginning to receive benefits from a Maltese QROPS.
“We do not comment on other jurisdictions,” the HMRC spokesperson added.
“Legislation sets out when UK tax charges apply, and we are monitoring the effectiveness of the system closely.”
To download a Pensions Regulator brochure on pension liberation, click here.
