On 6 December, HMRC unveiled a series of proposed changes to the rules under which UK pensions may be transferred out of Britain by those who are leaving the UK for good, in an effort to crack down on what it said has been misuse of so-called qualifying registered overseas pension schemes by some pension administrators.
A consultation period ended on 31 January, and the revised legislation, published on Budget Day last week, is set to take effect from 6 April.
QROPS industry sources say that Monday’s approval by Guernsey’s State Legislative Committee of the new Guernsey pensions regime has, however, left some advisers scratching their heads about what it means to them and their clients.
Herewith, answers to some of the most-asked questions, according to Guernsey pension experts:
1. My client has an existing Guernsey QROP scheme. May he leave it in that scheme – the so-called S157A pension – rather than transferring it into one of the new, S157E pension schemes?
A: He may leave it in the old scheme, but after the 6th of April, if its trustees do not convert it to the new S157E regime, the scheme will cease to be a QROPS (ie, it will be “de-listed”). For your client’s pension to retain QROPS status, it must be transferred into the new S157E scheme.
And if the trustees of your client’s QROPS have decided to move their scheme – in which your client’s pension is now – into the S157E regime, your client, if not a Guernsey resident, would have to transfer it elsewhere, ideally before the scheme moves, if he does not want it to be treated as an S157E scheme member.
2. Is there any advantage in moving one’s existing Guernsey QROPS into an S157E scheme?
A: The main advantage is that it would not be subject to the potential downsides of not moving it. (This is why Sovereign Trust [Channel Islands], one of Guernsey’s largest QROPS administrators, is moving every one of its existing QROP schemes, according to managing director Rob Shipman – even those of all its Guernsey residents who paid into UK pensions during time spent in the UK).
It is not compulsory to move a pension in an existing Guernsey scheme into an S157E scheme, according to Stephen Ainsworth, president of the Guernsey Association of Pension Providers (GAPP) and a senior partner at Guernsey-based BWCI Group. But it is, he says, difficult to see why most people with such a pension who are not Guernsey residents would not want to.
And he stressed that the decision to move a QROP scheme, which is comprised of many individuals’ pensions, is made by the scheme’s trustees, not the scheme’s members.
Meanwhile, pension experts say that for some high net worth individuals, the fact that under the new Guernsey pension regime one is not obliged to commence taking benefits by age 75, as was and remains the case under S157A, is considered an advantage. Such individuals, they say, typically do not need the money to live, and prefer to leave it where it is for the next generation’s safe keeping.
One difference from before is that under the new arrangement, pension trustees are obliged to report annually to HMRC on activity within their QROPS scheme for the first 10 years after it has been transferred.
This is so HMRC may keep an eye on the activities of the trustees rather than to obtain information on the individuals whose pensions it holds, one pension industry official pointed out.
3. What happens if my client’s pension remains in its existing S157A scheme, and the scheme is not transferred – effectively resulting in its being de-listed?
A: If a QROPS scheme is de-listed, HMRC will expect to receive a raft of personal information about the owners of the pensions in the scheme, and about the scheme itself, such as their current residential addresses, National Insurance numbers, the total amount that was originally transferred into the scheme to begin with, and what remains in it currently.
Also, because the scheme will have ceased to be a QROPS, scheme members become potentially vulnerable to certain potential pitfalls, mainly having to do with their ability to return their pension to a UK registered scheme at some later date.
For example, finding a UK registered scheme willling to accept a pension from a de-listed scheme could be difficult, pension experts point out, and they say there also could be an adverse impact on the pension’s lifetime allowance, and a risk of tax charges for the scheme member.
4. Do Guernsey residents have to make use of the new S157E scheme, or may they continue to use the existing S157A scheme, which enables them to receive tax relief on their contributions, in return for which they pay tax on the benefits when they take them?
A: Guernsey residents have a choice of which scheme to use. Because it was designed to meet HMRC’s new Benefits Exemption Test, formally known as Condition 4, the S157E scheme does not offer tax relief on contributions, but also does not tax the benefits as they are withdrawn.
Under both the existing and new pension regimes, investment income and gains are exempted from Guernsey tax.
5. Does the maximum amount of cash permissible to take from the pension at commencement change?
A: No, it stays at 30% of the total funds available at commencement.
With days to go before the existing Guernsey QROPS schemes will be delisted if not moved, the GAAP’s Stephen Ainsworth stresses that any scheme trustees who are unsure which option is best for their members “should seek appropriate professional advice”.
“In practice, most scheme trustees by now will have made their decisions and, where appropriate, will have made their applications for conversion,” he added.
“Approval letters for S157E approval are expected to be issued within the next few days, now that the law has been enacted, and before 6th April.”
To view the 20-page S157E document as it appears on the States of Guernsey website, click here.
