Thursday 14th November 2013

QROPS changes and how to roll with the punches

With the HM Revenue and Customs list due to be published tomorrow, November 15th, investors are waiting to see how updates will affect pension transfers. Since early October, several schemes across the Caribbean Islands, Bangladesh and Malaysia have been delisted. Earlier in the year, QROPS in Singapore, Slovakia and Cyprus were also delisted but it seems like there won’t be any clarification from HMRC as to why these changes have been made.

In July, more than 430 schemes were suspended by HMRC. After a Singaporean QROPS called ROSIIP lost its status, pensioners had been charged a penalty of 55% - 75% of their transferred funds between 2006 and 2008 on the basis that it broke stipulated rules. In a class action suit, investors claimed that the transfers were legitimate at the time, forcing HMRC to withdraw from the case in the London High Court on July 17th after a 4 day hearing.

Last month, four schemes in the Grenadines, St Lucia and St Vincent had been delisted and November brought even more changes. The suspension of two more jurisdictions, Bangladesh and Malaysia, caused the first decrease in total number of available QROPS since 2012, bringing it down to 3,180.

QROPS can be suspended for a couple reasons:

  • schemes no longer function as a QROPS
  • providers have stopped acting according to HMRC regulations and are being reviewed

In case of a review, jurisdictions can eventually be re-included in the list, even though past years have shown that this is rarely the case. Of all delisted schemes since end of 2012, only Latvia has achieved a comeback, bringing the total number of QROPS jurisdictions to 42.

In the unfortunate situation that scheme gets delisted, investors have two options: stick with it and lose tax relief benefits or change providers. It has been confirmed by HMRC that if investors choose to continue on a particular delisted scheme no tax penalties will be charged, as long as the transfers obliged to regulations at the time. If deemed otherwise, it could get expensive. Changing schemes may look like the safer option at first, but it might come with costs as well, as some schemes charge exit or set-up fees.

James Cartwright, an editor at QROPS Review, said, “Pension transfers away from the UK and the entire QROPS landscape can appear to be a total minefield. HMRC’s actions thus far have been shameful to say the least but the recent court judgements show that judges are standing up for the rights of consumers even in the face of harsh actions from the tax authorities.”

With schemes' status and qrops rules changing as quickly as they have over the past few of months, it is only natural to be a bit sceptical about transferring pension funds abroad. In fact, a survey from HSBC Expat Explorer estimates that more than 25% of British expats keep their savings in the UK, risking excessive taxation. It remains to be seen how many, if any of the banned jurisdictions make it back.

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