The new pensions regime will treat Guernsey residents and non residents the same – with no Guernsey tax due on benefits paid – in order to address a fresh set of concerns raised back in December by the UK’s HM Revenue & Customs.
The proposed "new category of scheme", which is spelled out in a document (click here to view) published on the States of Guernsey website today, is expected to be approved by States of Guernsey lawmakers when it is put to them for a vote on 6 March, Guernsey pension industry sources said.
In addition to the nil Guernsey tax on benefits paid, another key feature of the as-yet-unnamed scheme is that it does not provide tax relief on pension contributions to Guernsey residents, unlike the pension structure used by most Guernsey residents.
This would reduce the decline in tax revenue to Guernsey that would result from the sudden loss of pension tax income if many residents were to switch to the new regime, though it could also have the effect of discouraging locals from opting for it or moving their existing pensions into it.
Under the current Guernsey legislation, a Guernsey resident who puts £8,000 into his or her pension automatically receives “tax relief” that effectively boosts that contribution by, in the case of 20% tax relief, £1,600.
"Although it is not possible to provide an accurate estimate of the potential loss of tax revenues, because this will depend on taxpayer behaviour, the [States of Guernsey Treasury & Resources Department] is satisfied that…the risk is significantly reduced" that the loss would be significant, the document outlining the proposed new scheme states.
Under both scenarios the pension fund would build up gross, as no tax would be charged on investment income.
Another feature of the scheme is that at least 70% of the scheme member’s tax-relieved scheme funds must be designated by the scheme manager "for the purpose of providing the member with an income for life". This means that any lump sum paid "should not exceed 30% of the fund value at maturity", the document adds.
As reported in IA last month, HMRC surprised QROPS providers and advisers around the world on 6 Dec with a package of proposed changes to the rules governing how UK taxpayers may transfer their UK pensions overseas, when they move abroad for good.
A consultation period ends on 30 Jan, with the revised legislation expected to take effect from 6 April.
Of the changes proposed by HMRC, the most problematic for a number of jurisdictions, including Guernsey but also for some administrators on the Isle of Man, has been a stipulation that the payments of all qualifying recognised overseas pension schemes be taxed at the same rate at which pensioners resident in the jurisdiction in which the QROPS is administered are also taxed.
Until now, Guernsey has taxed its residents’ pensions but not those of non-residents, who were assumed to pay tax on their pension income in the country in which they lived.
In the Isle of Man, only the recently-introduced "50C" type of schemes are potentially affected by the "Condition 4" requirements, a QROPS industry spokesman there said.
Guernsey pension industry sources told International Adviser that existing Guernsey QROPS are expected to transfer easily into the new HMRC-friendly Guernsey pension scheme, and thus comply with what is known as the “Condition 4” clause of HMRC’s package of proposed QROPS legislation changes.
GAPP response
In a response published today by the Guernsey Association of Pension Providers (GAPP), the organisation welcomed the island’s proposed pensions regime and said that, while it continues to lobby HMRC to reconsider its rule-change, it is prudent to "move forward with alternative solutions" given the "very limited time" allowed by the Revenue for consultation with the QROPS industry.
GAPP president Stephen Ainsworth said: "We have been working very closely with the Guernsey Income Tax Office and with senior politicians to create a flexible but robust pensions system which not only meets the needs of Guernsey residents but secures the position of those former members of UK pension schemes who have trusted Guernsey QROPS with their retirement savings.
"I am delighted with the result, which demonstrates the importance of pensions saving within Guernsey."
Roger Berry, managing director of Guernsey-based QROPS specialist Concept Group, who heads the QROPS sub-committee of GAPP, added that Guernsey’s plans for accommodating HMRC’s concerns would “provide members [of existing QROPS schemes in Guernsey] with a bona fide pension scheme capable of meeting HMRC requirements, while still upholding the original spirit of QROPS”.
