The discussions with Guernsey are part of an international review which HMRC has undertaken after it removed Singapore from its list of recognised jurisdictions last year.
The focus of the review is the qualifying registered overseas pension rules. These were established in 2005 and came into effect on A-Day in April 2006.
Prior to A-Day, HMRC had individual deals with a group of territories. Now the Qrops agreement is a single document which applies to a list of jurisdictions.
It covers the rules for transferring the British pension rights of non-residents or non-domicilliaries to schemes in financial centres recognised by the Revenue.
One of the taxman’s principal concerns is that the schemes are not vehicles for converting pensions into cash. This is where Singapore encountered problems.
The literature published by certain financial services companies in Singapore suggested that residents could engage in pension busting. The UK tax authority conducted an investigation and removed Singapore. This, though, is not an open and shut case. There may be court battles ahead.
The point of shifting pension rights is the more generous benefits which certain jurisdictions offer. For example, the investment rules in Guernsey would allow the pensioner to hold stakes in a wider range of assets than in the UK.
The tax regime is also much more benign. On death of the holder, certain pension plans allow the children to be the beneficiaries of the scheme.
In Britain, the taxman can take up to 85 per cent of the value of the pension. In Guernsey, the tax rate is 7.5 per cent. This means that the non-resident can be assured that the fund is properly managed and that his or her family will be true beneficiaries.
Guernsey has been in the market of offshore pension plans longer than any other jurisdiction but the Isle of Man enjoys similar profile and standing.
What sets them apart from other centres is the quality of their regulation. For the British tax authority to approve a jurisdiction for Qrops purposes, it must conform to international standards of regulation.
HMRC is particularly concerned about annual reporting on the deployment of funds in the scheme.
Both Guernsey and the Isle of Man exceed the regulatory requirements demanded by HMRC. However, there is still considerable disquiet in these two offshore centres due to the increasingly belligerent climate engendered by politicians worldwide.
Some legislators are keen to blame offshore centres for global economic woes. Following a series of threats by the new US president, the European Commission, the UK government and the Organisation for Economic Cooperation and Development, industry groups believe that governments may try to impose new tiers of regulation.
This could hit pension funds as much as any other financial sector and limit the effectiveness of the products available.