General implication when a QROPS no longer meets the requirements
When a QROPS scheme no longer meets the requirements to be a QROPS, they must disclose the value of UK tax relieved funds for UK relevant members on the date they ceased to meet the requirements to be a QROPS along with the UK relevant members' details to HMRC.
HMRC have confirmed there is no effect on the UK tax relieved pension funds that have been transferred to the scheme providing the scheme was a QROPS at the time of the transfer. The scheme continues to be a pension scheme under the laws in the country or territory in which the scheme is established.
Contributions made to the scheme which are not UK tax relieved can also continue to be made as non-UK tax-relieved funds are not impacted by the whether the scheme is a QROPS or not under the QROPS regulations introduced by HMRC. Further transfers from UK pensions will not be allowed due to such a transfer being regarded as an unauthorised payment and would attract an unauthorised payment charge of 55%.
The tax treatment of the pension benefits does not change and after five complete tax years from your client leaving the UK, the benefit payments only need to meet the local pension rules in respect of the Pension Commencement Lump Sum (PCLS) and level of pension income; and they no longer need to be included in the client’s UK tax self-assessment. A lump sum paid to your client’s family on their death would also avoid a member payment charge of 55% after the five complete tax years.
Options for the scheme member
So what are the options available to a client who is a member of a scheme that no longer meets the QROPS requirements?
- Stay with the current provider
- Transfer to a new QROPS provider
Staying with the current provider
The implications of this option depend on when the scheme ceased to meet the QROPS requirements:
Pre 6 April 2012
In effect, the funds for these schemes are ring-fenced as “Pre 6 April 2012 QROPS”.
Any pension benefits (PCLS or pension income) taken from the overseas pension scheme within 5 years of your client leaving the UK (or if they returned to the UK) would not need to be reported to HMRC if the overseas pension scheme is no longer a QROPS. The new 10-year reporting requirement will also not apply, if the overseas pension scheme is no longer regarded as a QROPS as at 6 April 2012 when the new reporting rules take effect.
Post 5 April 2012 but Pre 6 April 2013
Any pension benefits (PCLS or pension income) taken from the overseas pension scheme within 10 tax years of your client leaving the UK (or if they returned to the UK) would not need to be reported to HMRC if the overseas pension scheme is no longer a QROPS.
From 6 April 2013
All schemes that used to meet the QROPS requirements, but no longer do from 6 April 2013 will be defined as "Former QROPS".
All Former QROPS must report any pension benefits (PCLS or pension income) made to UK resident members or members who have been non-UK resident for less than 10 complete tax years to HMRC.
Transferring to a new QROPS
It is possible to transfer UK tax-relieved pension funds to a QROPS provider who meets the current QROPS regulations.
This may mean that a client has a “Pre 6 April QROPS pension pot and a post 6 April 2012 QROPS pension pot. The client may choose to consolidate the QROPS pots by transferring to one QROPS provider. This will however mean that the new 10-year reporting requirements will apply immediately to the whole pension fund. In addition, exit charges may apply for transferring from the existing overseas pension scheme. Details of these charges should be available from the overseas pension provider. The effect of these charges should be considered carefully before proceeding with a transfer.
In terms of the underlying investment it is possible to in effect transfer that investment with you. In order to achieve this, the current provider must, as part of the transfer, assign legal ownership of the underlying product to the new QROPS provider. The current provider may choose not to assign the legal ownership of the underlying investment or it may make a charge for executing the assignment. However, where the underlying asset is, for example, an Old Mutual International bond, Old Mutual International will make no charge for the change of ownership by way of assignment. Old Mutual International would need to see evidence of the change of ownership and receive confirmation of any new appointment in terms of investment adviser/manager.