Recognised Overseas Pension Schemes – HMRC’s list
Following recent legislative changes, HMRC wrote to overseas pension schemes asking them to confirm whether they continue to meet the requirements to be a “Qualifying Recognised Overseas Pension Scheme” (QROPS). With the deadline for responding having lapsed on 17 June, HMRC has temporarily suspended its overseas pension schemes list until 1 July 2015.
In this Alert
- Key points
- Overseas pension transfers: A quick recap
- New requirements from 6 April 2015
- HMRC’s list of overseas pension schemes
- Due diligence
- Tax consequences of transfer to a non-QROPS
- For a transfer from a UK registered pension scheme to an overseas pension arrangement to be made free of UK tax, it must be made to a scheme which is a QROPS.
- Recent changes to the rules governing QROPS mean that benefits cannot generally be paid before age 55, unless the transferring member is retiring due to ill-health.
- HMRC has recently changed the way in which it describes its published list of overseas pension schemes.
- As with all transfers from registered pension schemes, it is essential that trustees carry out due diligence on the receiving overseas pension scheme.
A QROPS is a pension scheme established outside the UK which is broadly similar to a UK registered pension scheme and which complies with four incremental conditions set out in the Finance Act 2004. The scheme must be (and remain at all times):
- a pension scheme
- an overseas pension scheme
- a recognised overseas pension scheme (ROPS) and
- a qualifying recognised overseas pension scheme.
Steps to be taken for a ROPS to become a QROPS (and therefore capable of receiving a transfer from a UK registered pension scheme on a tax efficient basis) include:
- notifying HMRC that a scheme is a ROPS using form APSS 251
- providing evidence of a scheme’s status to HMRC and
- making certain commitments in relation to reporting matters to HMRC.
A transfer to a QROPS will trigger a test against the LTA.
As well as needing to satisfy conditions relating to regulation and tax treatment, following legislative changes made with effect from 6 April 2015, a QROPS must generally satisfy the “Pension Age Test” (there are certain limited exceptions to this condition).
In order to meet the Pension Age Test, either the QROPS’ own governing documentation or the law of the relevant overseas country must prevent transferred benefits being paid before “normal minimum pension age” (usually, age 55), unless the transferring member is retiring due to ill-health. The test for ill-health to be applied in these circumstances must not be lower than that set out under the Finance Act 2004.
The Pension Age Test has been causing difficulties for pension schemes in certain jurisdictions, most notably Australia, where benefits may be accessed at an earlier age due to financial hardship. Trustees should take particular care when faced with a request for a transfer to a QROPS, to ensure this new requirement is met.
Previously, HMRC’s list of overseas pension schemes was referred to as the “QROPS list” and was prefaced with a comment that the schemes on the list had notified HMRC that they met the QROPS conditions.
However, due to a shift in emphasis by HMRC, since 15 April 2015, the schemes on the list are no longer described as “qualifying”. Going forward, HMRC will instead maintain a list of schemes which have notified it that they are a ROPS. This list will also state that HMRC cannot “guarantee these [schemes] are ROPS or that any transfers to them will be free of UK tax”.
We understand that the aim of this change is to clarify the status of schemes on the list, rather than any practical change in the procedure used by HMRC for including schemes. It remains a list of schemes that have self-certified to HMRC that they meet the relevant conditions. But it is not (and never has been) intended to be a list of overseas schemes that are endorsed by HMRC.
Once it is republished on 1 July 2015, the ROPS list will continue to be updated on the 1st and 15th day of each month (or next working day if a weekend or UK public holiday). It will also now alert users to the risks of pension scams.
Trustees dealing with a request for a transfer to a QROPS should carry out reasonable due diligence to satisfy themselves that the transfer will be a recognised transfer, and that it will not give rise to unauthorised payment charges or a scheme sanction charge (there is also now a reminder to this effect on each page of the list). This could include:
- checking to see whether the member has a right to transfer (whether under legislation or the scheme rules)
- assessing the suitability of the proposed receiving scheme (for example, by checking its governing documentation and literature)
- asking the QROPS for a copy of form APSS251 (used to notify HMRC that it met all of the legal conditions to be a QROPS), together with its QROPS reference number
- ensuring that the proposed receiving scheme appears on HMRC’s list (and repeating this check “no more than one day before making the transfer”).
Where a transfer is made to a scheme which does not satisfy the conditions to be a QROPS, the payment will be unauthorised resulting in adverse tax consequences for the member and a potential scheme sanction charge for the trustees. However, trustees may apply to HMRC for a discharge from the scheme sanction charge by relying on the so-called “good faith’ protection”, namely that:
- they reasonably believed that the unauthorised payment was not a scheme chargeable payment and
- in all the circumstances of the case it would not be just and reasonable for the scheme administrator to be liable.
The process for applying for a discharge in these circumstances is explained in the new Pensions Tax Manual.