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A rising star in offshore pensions?

Equilibrium’s Tim Boles looks at why the Isle of Mans popularity has grown in the pensions market.

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Some, but not all of this growth, may be observed in the official data, with international schemes having soared by more than six times – to 664 schemes from 109 – in the four years to 2010.
(Among the reasons this number differs dramatically from the approximately 170 schemes listed on HMRC’s website is that many operators prefer to keep their QROPS confidential;  also, not all international pension schemes are QROPS.)

By contrast, the number of domestic Isle of Man schemes has also been rising steadily, but less dramatically. Their numbers have risen by 58%, to 696 from 440.  The value of funds under management, meanwhile, has risen by 55%, to £1.4bn in 2009, the last year for which data is available, from £900m in 2006.

Also clear is that the international demand for Isle of Man pension schemes is not limited to a specific area or market.  They sell in emerging markets including Singapore, Hong Kong, South America and the Middle East, while also winning business in South Africa, and Europe.

The rapid rise in international corporate schemes has happened partly because of cost savings, but also product suitability. Heads of HR who want to set up pensions over long periods for employees who move to several jurisdictions within the same organisation may benefit from economies of scale.

Good regulation explains the demand from global companies. The International Monetary Fund praised the Isle of Man’s regulation and supervision of its financial services in 2003 and again in 2009, after the financial crisis. Crucially, the island has an independent regulator, the Insurance and Pensions Authority. The IPA has been instrumental in revising the Isle of Man’s pension legislation.
The Retirement Benefits Schemes Act 2000 aims at offering international pensions in a regulated environment. The Act was followed by the accompanying Retirement Benefit Regulations.

Flexibility is another major advantage. There are minimal limits on contributions and the benefits which may be taken, the age of receiving them, and employees are not forced to buy annuities. There is a choice of currencies and the jurisdiction offers a AAA rating. The Isle of Man’s authorities receive no tax revenue from the international schemes.

South Africa

The Isle of Man’s advantages are so significant that they have convinced many South Africans to entrust pension assets to one of the 23 registered administrators which have begun to do business
since 2001. South Africa’s laws currently allow its residents to receive, subject to meeting the criteria, tax-free income from an overseas pension scheme.  The Isle of Man has won business from South African citizens who are about to move overseas but intend to retire in their homeland. Equally, South African nationals who currently work outside their home jurisdiction have placed their pension assets on the Isle of Man.

South Africa’s leading companies have also chosen the Isle of Man for international corporate pension schemes.  Sandvik, a Johannesburg-based mining business, is one. It employs engineers in countries including Chile, Ghana, Dubai, Tanzania, Zambia and Zimbabwe, as well as South Africa itself.  The company chose the Isle of Man as its base for an international corporate scheme after analysing costs, the zero-tax environment, the dedicated regulator, and the ability to select its currency – US dollars. When a senior engineer moved from Chile to Dubai, his pension contributions arrived from the new location. But the HR manager had no headache over the pension aspect of the senior engineer’s move.

But one puzzle remains. Advisers view the Isle of Man as a good place for UK expats to hold HMRC QROPS, which may be offshore SIPPS (Self-Invested Personal Pensions) or schemes under master deed arrangements. These QROPS are designed for UK expatriates who have left pensions in the UK but work outside Britain.

The only enigma, then, is this. Why is the Isle of Man still the offshore pension market’s best-kept secret?

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