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Tony Mudd: How to pick the best Qrops jurisdiction

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Much has been written on the subject of qualifying recognised overseas pension schemes and given the changes we have witnessed such as new regulations, increased information gathering powers and additional reporting requirements this is hardly a surprise.

However, far too many Qrops providers, advisers and jurisdictions seeking to offer these arrangements seem to believe that Qrops stands for “Questionable reasons to oppose pension stripping”.

Don’t get me wrong, offshore pensions schemes, in the right circumstances, can be valuable retirement tax and succession planning tools. However, for best advice to be given, UK and relevant foreign laws must be carefully analysed and understood.

Most advisers operating in this space will of course be well aware of UK pension rules. The statutory requirement for a Qrops is S150(7) FA2004. Additional requirements were introduced in April 2012, also known as the ‘benefits tax relief test’, and the most recent amendments, the Registered Pensions Scheme and Overseas Pensions Schemes (miscellaneous amendments) Regulations 2013, only came into force on 14 October this year.

But what of the non UK aspects: specifically what is the right jurisdiction for the Qrops provider?

It would be a significant error to assume that all jurisdictions are the same. It would also be an error to assume it’s just about pensions legislation. It is about the jurisdictions’ commitment both politically and economically to the proposition, the levels of expertise and the experience and ability to deliver a service in an efficient and cost effective manner. Other factors such as investor protection, dispute mediation and international standing are also key points.

So where to look; or perhaps where not to look.

Singapore Qrops are well known to have been delisted and with the recently published HMRC list showing all but two Hong Kong Qrops being deregistered, the options in this part of the world are all but non-existent.

Guernsey had engineered itself into a position where it was considered by most as the jurisdiction of choice but that was before being attacked for perceived abuse of Qrops legislation. Unfortunately, the most recent attempts by the Guernsey Income Tax office to address the issues have stalled. HMRC and the Treasury require Guernsey to disallow any schemes that are not fully Qrops. Further, it would appear HMRC is looking to restrict Guernsey to Qrops with members who could utilise a double taxation agreement. Currently this would be the UK and Channel Islands only.

New players are also entering the market.

Switzerland has a very well founded and regulated retirement sector. Its local rules allow significant flexibility including encashment so that members can use their accumulated retirement funds for securing retirement provision.

Ireland has expressed interest too about opening up its legislation for international members and as a jurisdiction. It has significantly more flexible benefit options than the UK plus is not restricted to the 70 per cent rule. In both cases however, at least at the moment, it is difficult to determine their merits.

Malta has also come onto the scene of late and appears to be a jurisdiction of choice for many, however I have my doubts. There are additional licenses required for financial advisers and at the same time there is no financial ombudsman or indeed financial compensation scheme.

I would suggest this narrows it down to three options, the Isle of Man, Gibraltar and New Zealand. Each offer their own variations in respect of issues such as lump sums, benefit dates, permitted investment architecture, taxation, death benefit and retirement ages. Ultimately, selection of the most suitable jurisdiction will be based on matching these variations to the client’s requirements. Compared to everything else this part is simple.

Tony Mudd is divisional director of development & technical consultancy at St James’s Place

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Bethell Codrington 12th December 2013 at 12:41 pm

    Interesting observations, but not sure that I agree with the outcome.
    The article seems to imply that all jurisdictions apart from Malta have Financial Ombudsman (who have teeth) and Compensation Schemes. I would be interested to see a bit more detail on this, such as ‘powers’ of the Ombudsman, who is backing these compensation schemes and to what level, and whether that is to failoure of the Trustees or underlying investment providers who are normally in foreign territories. A Gibraltar Trustee with an investment in a life policy in IoM or Dublin which goes bust. Is Gibraltear going to bail the client out?
    I would have thought that Malta with its strict regulatory oversight (no reliance on Codes of Conduct – we kbnow where they end up) and obligatory independent auditing every year would give more comfort to clients, than how far can a jurisdiction flex the benefits. That together with 60 odd DTAs seems to have been overlooked.
    HMRC’s announcement on 27th November this year would I suggest steer people to the most compliant jurisdictions

  2. I would concur with Bethell on this issue.

    Love the last sentence ” Compared to everything else this part is simple”- Really?

  3. I have to agree with Bethell and Chris that compliant jurisdictions with strict regulatory oversight and audit must feature at the top of the generic list before overlaying the individual client’s situation. In addition, there are strong advantages for being in the EU!

  4. Gentlemen, Bethell,Chris, Tim, as the auther it may surprise you that I don’t disagree with your much of your observations but would simply say that there is a limit to what ground I can cover with a brief of 400-500 words. That being said I still stand by my view that the logical choice right now is narrowed to the three I identified although within that my preference would be Gibraltar ( always accepting that we are no longer in a position of having a single jurisdiction that is all things to all clients). Further that while strict regulatory oversight is essential and to be addressed before overlaying client circumstances the point I was attempting to make was that far too many advisers (present company clearly accepted) rely almost entirely on their UK pensions knowledge to operate in a field that requires so much more. As for “Simple” – apologies sarcasm is the lower form of wit.

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