HMRC clarifies changes to list of 'recognised overseas pension schemes'

In its latest update for administrators, the UK tax authority emphasised that it was the responsibility of the administrator and pension scheme member to check that an overseas pension scheme met certain legal tests before transferring the member's savings. Transfers to schemes that are not qualifying recognised overseas pension schemes (QROPS) carry high tax penalties, usually 55% for the member and 15% for the scheme administrator, HMRC said.

"Checking the published list the day before the transfer will confirm whether the scheme has notified HMRC," the tax authority said. "It will not confirm that the scheme meets the ROPS requirements."

"Checks to confirm whether a pension scheme meets the ROPS requirements should be carried out as part of an individual's and scheme administrator's due diligence when making a transfer," it said in the update.

HMRC suspended publication of the ROPS list in June after it emerged that some schemes should not have been included on it as they could be required to provide benefits to members before they reached the age of 55. In April this year, a 'pension age test' was added to the QROPS rules disqualifying any scheme capable of making payments to members before they turned 55, other than on ill-health grounds.

A QROPS is a foreign pension scheme that HMRC recognises as being capable of accepting a transfer value from a UK-registered pension scheme. Scheme members can transfer their UK pension benefits to a QROPS without incurring unauthorised payment charges or sanctions and, once transferred, escape UK tax liability on pension income. The ROPS list is maintained by HMRC for information purposes only, and inclusion on it is based on self-certification by the schemes themselves. It should not be taken as evidence that a scheme meets the legal requirements.

The latest HMRC newsletter also contained information about forthcoming changes to the annual allowance, and about the tax authority's ongoing campaign against pension liberation scams.

HMRC intends to introduce two new protection regimes with the same conditions as the previous fixed and individual protection regimes in time for the lifetime allowance being cut from £1.25 million to £1 million from 6 April 2016. It intends to publish more details about these new schemes in the next issue of its pension schemes newsletter, ahead of draft legislation which will be included in the 2016 Finance Bill, it said.

In the meantime, scheme administrators should be thinking about how to communicate to their members that in order to qualify for the new 'fixed protection' scheme, they must have no benefit accrual after 6 April 2016. To qualify for the new 'individual protection' scheme, they must have savings of at least £1m on 5 April 2016, according to the newsletter.

HMRC also used its newsletter to warn scheme administrators that pension liberation scammers were increasingly using "sophisticated ... models to encourage taxpayers to access their pension savings early or transfer their hard-earned savings into scam pension schemes with little or no return on their investment".

"Whilst the action we are taking to prevent these sorts of arrangements from operating goes some way to help protect pension savings, the responsibility for getting the right advice lies with the pension scheme member," HMRC said in its newsletter. "We want members to make the right decisions about investments and to understand the consequences of not seeking proper advice."

Scheme administrators should direct their members to the Pensions Regulator's information about pension scams "wherever possible", it said.

According to the latest figures from Action Fraud, individuals' losses as a result of pension scams almost tripled from £1.4m in April to £4.7m in May. However, pension liberation expert Ben Fairhead of Pinsent Masons, the law firm behind Out-Law.com, said at the time that it was "far too early" to relate this to pension savers' increased freedom to access their money, which took effect in April.

"Whilst there is every expectation that a number of people could be scammed out of their pension funds as a result of the changes in place since April, it will surely take some time before victims realise their money is lost unless they have fallen prey to the most basic of scams and simply not received cash they thought they would be taking from their pensions," he said.

However, he said that that figures clearly showed that "if these sorts of sums are being reported as lost on a monthly basis, the impact of pension liberation fraud is being felt in a very big way".