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QROPS rules and reporting

For those living overseas or with overseas pension schemes, it may be possible to
transfer their UK pension benefits to pension schemes outside the UK.
A transfer from a registered pension scheme to an overseas pension may only be
permitted as a recognised transfer (normally made without a UK tax charge) where
the overseas scheme is a Qualifying Recognised Overseas Pension Scheme
(QROPS).

When is an overseas pension scheme
treated as a QROPS?

A scheme must meet three layers of rules and regulations to qualify as a QROPS:

1. Overseas Pension Scheme regulations
2. Recognised Overseas Pension Scheme regulations
3. Additional reporting requirements

From 6 April 2012, these rules will be altered. Details of each layer of the rules
applicable from 6 April 2012 are is laid out below. We will then detail the differences
between these new rules and the current (pre 6 April 2012) rules.

Layer 1 – Overseas pension scheme

For a scheme to be classed as an overseas pension scheme under Section 150 (7)
of Finance Act 2004 (other than UK Government pension schemes for civil servants
working overseas), it:

A – cannot be a UK registered pension scheme; and

B – must be established outside the United Kingdom.

For this purpose the scheme will be treated as established in the country where its
registered office and main administration are based. The location of the scheme's
main administration is where the scheme's decisions are made. For trust-based
schemes, this would normally be determined by where the scheme trustees are
resident; and

C – must be regulated as a pension scheme in the country in which it is established,
or if there is no body by which it could be regulated, then certain conditions must be
met. The Pension Schemes (Categories of Country and Requirements for Overseas
Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006
(SI2006/206) as amended* state the conditions for satisfying the regulatory
requirements where there is no local body.); and

D – must be recognised for tax purposes as a pension by the country or territory in
which it is established, or if there is no such recognition in local law then The
Pension Schemes (Categories of Country and Requirements for Overseas Pension
Schemes and Recognised Overseas Pension Schemes) Regulations 2006
(SI2006/206) as amended* also state the conditions for satisfying tax conditions.

*Regulations amended by The Pension Schemes (Categories of Country and
Requirements for Overseas Pension Schemes and Recognised Overseas Pension
Schemes) Amendment Regulations 2007 (SI2007/1600) and The Registered
Pension Schemes and Overseas Pension Schemes (Miscellaneous Amendments)
Regulations 2012 (SI2012/884).

There are conditions and requirements mentioned above to satisfy requirements C
and D are set out below:

Regulation conditions

A scheme must meet at least one of the following three conditions to be deemed an
overseas pension scheme:

Condition 1

1. the scheme is an occupational pension scheme, and
2. there is, in the country or territory in which it is established, a body which regulates
occupational pension schemes, and
3. it is regulated by that body.

Condition 2

1. the scheme is not an occupational pension scheme, and
2. there is, in the country or territory in which it is established, a body which regulates
pension schemes other than occupational pension schemes, and
3. it is regulated by that body; and

Condition 3

1. neither condition 1 or 2 is met, by reason only that no such regulatory body exists
in the country or territory, but (1) or (2) below is met:
2. the scheme is established in a Member State of the European Union, Norway,
Iceland or Liechtenstein, or
3. the scheme's rules provide that at least 70% of a member's UK tax-relieved
scheme funds will be designated by the scheme manager for the purpose of
providing the member with an income for life, and the pension benefits payable to
the member (and any associated lump sum) must be payable no earlier than
normal minimum pension age. (For a definition of normal minimum pension age,
see 'What do we mean by 'normal minimum pension age.)

Tax recognition conditions

A scheme must also meet the three conditions set out below to be deemed an
overseas pension scheme:

Condition 1

The scheme must be open to persons resident in the country or territory in which it is
established.

Condition 2

The scheme is established in a country or territory where there is a system of taxation
of personal pension income under which tax relief is available in respect of pensions,
and
(a) tax relief is not available to the member on contributions made to the scheme by
that individual or, if the individual is an employee, by their employer in respect of
earnings to which benefits under the scheme relate, or
(b) the scheme is liable to taxation on its income and gains, and is a complying
superannuation plan as defined in section 995-1 (definitions) of the Income Tax
Assessment Act 1997 of Australia, or
(c) all or most of the benefits paid by the scheme to members who are not in serious
ill health are subject to taxation. (For definitions of normal minimum pension age and
the ill-health condition, see 'What is meant by 'normal minimum pension age'?'
section below.)
It may be important to note that 'tax relief' for the purposes of this condition includes
the grant of an exemption from tax. In order for condition (c) to be met, provision for
serious ill-health under the pension tax scheme of the country in which the scheme is
established should fundamentally adhere to those provisions which apply to a
member of a UK registered pension scheme.

Condition 3

The overseas pension scheme is approved or recognised by, or registered with, the
relevant tax authorities as a pension scheme in the country or territory in which it is
established.

Layer 2 – Recognised overseas pension
scheme

For an overseas pension scheme to be treated as a recognised overseas pension
scheme, the scheme must meet the following conditions in addition to those for an
overseas pension schemes in accordance with Section 150 (8) of Finance Act 2004.
To meet the requirements, the scheme must ensure that where tax relief is available
to a member of the scheme who is not resident in the country or territory in which the
scheme is established, the same or substantially the same tax relief must be
available to local residents regardless of whether the member was a local resident
when they joined the scheme of at any other time they were a member of the scheme.

For the purposes of this requirement, 'tax relief'

(a) includes exemption from tax other than exemption by the use of double taxation
arrangements (an agreement between the country or territory where the scheme is
established and another country or territory with a view to affording relief from double
taxation), and
(b) is any tax relief that is available under the system of taxation of personal income in
the country or territory in which the scheme is established.

And then meet one or more of the following conditions:

A – be established in a Member State of the European Union, Norway, Iceland or
Liechtenstein, or in a country or territory (other than New Zealand) with which the UK
has a Double Taxation Agreement that contains exchange information and
non-discrimination provisions, or

B – satisfy the requirement that, at the time of the recognised transfer, the rules of the
scheme provide that:

  • at least 70% of the funds transferred will be designated by the scheme manager

for the purpose of providing the member with an income for life.

  • the pension benefits (and any associated lump sum) payable to the member

under the scheme to the extent that they relate to the transfer, are payable no
earlier than normal minimum pension age*.

  • membership of the scheme is open to persons resident in the country or territory

in which it is established.

* For a definition of normal minimum pension age, see 'What is meant by 'normal
minimum pension age'?'.

NOTE: Although Condition B only needs to be satisfied at the time of the transfer, if in
practice the QROPS disregarded the requirements then the scheme risks losing its
QROPS status. In any case, the overseas scheme will still have to comply with local
jurisdiction requirements.

Also, if member of such a scheme returns to UK, then payment benefits may be
unauthorised so the member may need to pay unauthorised payment charges if the
benefits are more than the equivalent for a UK registered pension in respect of the
UK tax-relieved funds.

C – at the time of the recognised transfer, the scheme is a KiwiSaver scheme as
defined in section 4(1)(interpretation) of the KiwiSaver Act 2006 of New Zealand.

Layer 3 – Notification and additional
reporting requirements to HMRC on the
scheme manager of a QROPS

To meet these requirements the scheme manager must complete HMRC form
APSS251**, to:

  • notify HMRC that the scheme is a recognised overseas pension scheme and

have provided evidence of that if required by HMRC

  • inform HMRC of the name of the country or territory in which the scheme is

established and the scheme manager's name (individuals or company), and the
contact details for the scheme along with address where day to day
administration is carried out.

  • undertake to notify HMRC if the scheme ceases to be a recognised overseas

pension scheme***

  • undertake to provide HMRC with certain information on making payments in

respect of relevant scheme members including the member's name address and
if relevant NI number within 90 days of the payment being made or deemed as
being made. Examples of this are details of any lump sum payment or
commencement of a pension to a UK resident, UK relevant member or a member
who has been non-UK resident for less than ten complete tax years.

  • undertake, from 6 April 2013, to provide evidence that the scheme is a ROPS

every 5 years to maintain its QROPS status, once granted.

In addition, the member payment provisions will apply to benefit payments where the
member:

(a) is resident in the UK when the payment is made (or is treated as made), or

(b) is not UK resident at the time the payment is made, however they have been
resident in the past five tax years from the time the payment is made.

NOTE: A payment for this purpose includes a transfer from the scheme. When
reporting is required, the scheme manager must report using Form APSS
253 (available from www.hmrc.gov.uk).

In response to this registration, HMRC will send the scheme a letter of acceptance
confirming that the scheme is a QROPS. The letter will show the unique QROPS
reference number for that scheme. Details of the QROPS will be entered on the APSS
database.

HMRC may ask the scheme manager for more evidence before issuing a letter of
acceptance (or rejection).

* Imposed under Regulation 3 of The Pension Schemes (Information Requirements
– Qualifying Overseas Schemes, Qualifying Overseas Schemes and Corresponding
Relief) Regulations 2006 (SI2006/208) as amended by The Registered Pension
Schemes and Overseas Pension Schemes (Miscellaneous Amendments)
Regulations 2012 (SI2012/884).
** This form is available from the HMRC website at www.hmrc.gov.uk
***If a QROPS ceases to be a recognised overseas pension scheme after it is
successfully registered as a QROPS, future transfers from a registered UK pension
scheme would be subject to unauthorised payment charges. Currently, the member
would be responsible for reporting to HMRC payments they receive, during the period
of ten tax years immediately proceeding the tax year that they became non-UK
resident. From 6 April 2013, the former QROPS will continue to be responsible for
reporting to HMRC benefit payments made to members during the period of ten tax
years immediately suceeding the tax year that the member became non-UK tax
resident. HMRC form APSS251B should be used to notify HMRC if the scheme no
longer meet the definition to be a recognised overseas pension scheme or the
scheme does not wish to retain QROPS status.

What changes have been made to the
regulations for overseas pension schemes
and recognised overseas pension schemes
from 6 April 2012?

Change to... Before 6 April 2012 From 6 April 2012

Tax recognition
requirements for
an overseas
pension scheme

There is an optional
requirement for an
overseas pension scheme
to be approved, registered
or recognised by the local
tax authorities.
However, the scheme can
instead meet the 70% of
the transfer value must be
used as an income for life,
where benefits cannot be

It is now a compulsory
requirement for an overseas
pension to be approved,
registered or recognised by the
tax authorities in the country or
territory in which it is
established.
taken earlier than normal
minimum pension age
rule.

Tax requirements
to be treated as a
recognised
overseas
pension

The scheme can treat
pension income for local
resident members
differently to overseas
members. i.e. paid net of
local income tax for locals
but gross for overseas
members.

The scheme must treat tax
reliefs and exemptions (other
than due to double taxation
arrangements) available in the
scheme’s jurisdiction the
same for local and overseas
members of the scheme.

Regulatory
requirement to
be treated as a
recognised
overseas
pension

A New Zealand scheme
can qualify without meeting
the 70% of income and
minimum normal pension
age rule. This is because
New Zealand schemes
are regulated in New
Zealand and New Zealand
has a DTA with the UK.

A New Zealand scheme can
only meet the rules if it is a
KiwiSaver Scheme, or the
scheme meets the 70% of the
transfer value must be used as
an income for life and the
benefits cannot be taken
earlier than normal minimum
pension age rule.

This third change has been introduced to stop the exploitation of the current rules in
New Zealand, where schemes with 100% return of funds as a lump sum were
promoted.

What changes have been made in terms of
reporting to HMRC?

Change to... Before 6 April 2012 From 6 April 2012

Reporting time
limits

Reports need to be
submitted by 31 January
following the end of the
tax year in which the
payment is made.

Pension benefits payments
need to be reported within
90 days of the payment date.

Benefit payment
reporting period

QROPS providers need to
report for payments made
within five complete tax
years of the member
becoming non-UK
resident.

Pension benefit payments
need to be reported for
payments made within ten
complete tax years from a
member becoming non-UK
resident.

Information required
on benefit payment
reports

The benefit payment
report does not ask for an
NI number and does not
specify that the address
for the member must be
the residential address.

The benefit payments report
requires additional
information to be submitted:
NI number for member
the residential address. where relevant; and
Principal residential
address

Details required to
obtain QROPS
status

This requirement is not
expressed in the reporting
requirements regulations.
Only the HMRC forms
request this information.

Where a QROPS is a
company, HMRC will require
the names and addresses
of all directors as part of the
reporting requirements.

Full requirements
for HMRC in relation
to approval,
cessation and
changes to a
QROPS

This requirements is not
expressed in the reporting
requirements regulations.
Only the HMRC forms give
these details.

The information
requirements for approval,
cessation and changes to a
QROPS are all added to the
reporting requirements
regulations.

Which funds should
be reported to
HMRC

This is not expressly
mentioned in the
reporting regulations.

The new regulations clearly
state that reporting is only in
respect of UK tax-relieved
funds transferred to the
scheme (or further
contributions attracting UK
tax relief, if any).

 

What changes have been made to the
reporting requirements within the Finance
Act 2004?

From 6 April 2013, the Finance Act 2013 will amend the Finance Act 2004 to reflect
the following changes in reporting requirements and penalties for non compliance.

Change to... Before 6 April 2013 From 6 April 2013

Undertaking to be
recognised as a QROPS by
HMRC.

No requirement to prove
the QROPS continues to
meet the rules to be
ROPS. Only removal of
status if HMRC found the
scheme to no longer be
meeting the rules.

A requirement for a
QROPS to provide
evidence that it
continues to meet the
rules to be a ROPS
every five years from
initial HMRC
approval.

Requirement to continue
reporting member benefit
payments during the period
of ten tax years immediately
preceding the tax year the
member becomes non-UK
resident once no longer
holding QROPS status.

No requirement on
scheme.
Member becomes
responsible for ongoing
The former QROPS
will be required to
continue reporting
and maybe penalised
reporting requirements.

The former QROPS
will be required to
continue reporting
and maybe penalised
for not doing so.

Penalties that HMRC could
impose on a QROPS
providers who failed to meet
reporting requirements.

Removal of QROPS
status.

Financial penalties
and removal of
QROPS status.

 

What is meant by ‘normal minimum
pension age’?

As a general rule, individuals reaching the age of 55 (or individuals reaching the age
of 50 before 6 April 2010 who opted to take their pension before 6 April 2010).
Certain categories of occupations eg footballers may have a right to take benefits
before the normal minimum pension age. However, to retain that age in the receiving
scheme they must use the ‘block transfer’ rules that apply to transfers between UK
registered schemes.
For ‘block transfer’ conditions to be met, two or more members must request a
transfer of benefits from that scheme to the same QROPS, having not been members
of the QROPS scheme at the date of the transfer for more than 12 months, and the
transfers must be made as a single transaction to the QROPS provider.
The protected pension age would only apply if all benefits under the receiving
scheme could be matured at that earlier age. Otherwise, the protection would not be
available and the normal minimum pension ages shown above will apply.

Revision of normal minimum pension age due to ill-health

Under a UK-registered pension scheme a member may take benefits at any age
where the scheme administrator accepts qualified medical advice to the effect that
the member satisfies the ill-health condition, and so is and will continue to be
medically incapable (either physically or mentally) as a result of injury, sickness,
disease or disability of continuing their current occupation and as a result of the
ill-health ceases to carry on the occupation.
Scheme rules can carry stricter definitions of ill-health and can stop the payment of
an ill-health pension if the member subsequently recovers from ill-health.

Serious ill-health

Pension benefits may be fully commuted to a lump sum before age 75 on the
grounds of serious ill-health. To satisfy the requirements the scheme administrator
must have received evidence from a registered medical practitioner that life
expectancy of the member is less than one year.
The commutation can only apply to uncrystallised rights and will be limited in the
case of a client with protected rights and a surviving spouse/civil partner* where
commutation is limited to 50% of those rights.
Benefits paid on these grounds will be tax free provided they do not exceed the
member’s Lifetime Allowance. Any lump sum paid in excess of the Lifetime
Allowance will be taxed unless the client has registered for primary and/or enhanced
protection.

* As defined by the Civil Partnership Act 2004.

Making transfers – Requirements of a UK
registered pension scheme provider to
authorise a transfer to a QROPS

The transferring scheme needs to establish if the receiving scheme is a QROPS. To
help, HMRC has published a list of schemes that are QROPS, together with their
country of establishment (link to website). 

The list is limited to those
schemes that have given their consent to have their details published – not all
QROPS providers will appear in it.
If the overseas pension scheme does not appear on the list, the scheme
administrator of the registered pension scheme can ask HMRC to confirm that the
receiving scheme has notified HMRC that it is a recognised overseas pension
scheme and has met the qualifying conditions to be a QROPS.
A transfer to an overseas pension scheme that is not a registered scheme or a
QROPS, is not a recognised transfer and would therefore be subject to unauthorised
payment charges.

Any request for a transfer of an Old Mutual Wealth registered pension to an overseas
pension scheme would only be permitted following evidence from the QROPS of their
status (QROPS reference number/letter of acceptance) Old Mutual Wealth may also request
further information to satisfy due diligence requirements.

There are further requirements if the transfer payment includes a contracted out
benefit (ie a Guaranteed Minimum Pension or Protected Rights). Before the transfer
can proceed, the UK scheme must:

  • Obtain written confirmation from the member that they understand the risks in

transferring this type of benefit overseas because the overseas pension scheme
may not provide the same degree of security or priority to the contracted out
benefit.

  • Take responsible steps to satisfy themselves that, where the overseas pension

scheme is an occupational pension scheme, the member has entered the
relevant employment.

  • Take reasonable steps to satisfy themselves that the member has received a

statement from the overseas scheme showing the benefits to be awarded in
exchange for the transfer payment.

  • Test to see if the relevant part of the transfer payment is of an amount at least

equal to the cash equivalent of the Guaranteed Minimum Pension Rights or
Protected Rights, as calculated and verified in a manner consistent with the
regulations made under Section 97 of the Pension Act 1993.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual International's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual International cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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