Out-Law News 2 min. read

UK pension trustees must 'urgently review' overseas transfer procedures as HMRC suspends notification list


UK pension trustees must "urgently review" their existing procedures for implementing transfers to overseas pension schemes after HM Revenue and Customs (HMRC) suspended publication of its list of recognised schemes, an expert has said.

Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement would make it more difficult to check whether overseas schemes that they had been asked to initiate transfers to were qualifying registered overseas pension schemes (QROPS). HMRC can challenge transfers to schemes that are not QROPS, he said.

HMRC is currently reviewing the list 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, Tyler said.

"Trustees should wait until after 1 July 2015, when HMRC begins publishing the list again, before implementing any transfer requests to overseas schemes," he said. "They must also bear in mind that checking whether a scheme is on the list is only part of the verification process: other steps are required to check whether the scheme is a QROPS."

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.

In order to be accepted as a QROPS a scheme must meet certain requirements including recognition for tax purposes by the local jurisdiction, being open to membership by locals and location in a jurisdiction that operates tax information-sharing arrangements with the UK. They must now also meet a 'pension age test' preventing them from making payments to members before the age of 55 other than on severe ill-health grounds, as is the case in the UK.

To assist pension fund managers and trustees, HMRC maintains a list of recognised overseas pension schemes (ROPS) which is generally updated twice a month. However, inclusion on the list is based on self-certification by the schemes themselves and does not necessarily mean that HMRC has verified that the schemes meet all applicable legal requirements.

HMRC said that it had become aware that some of the schemes that appeared on previous lists did not meet the age test. Schemes that allow members to access their savings before they turn 55 other than on ill-health grounds will not be included on the ROPS list when it returns in July, meaning that trustees and scheme managers should not rely on previous lists as evidence of an overseas scheme's qualifying status, HMRC said. This would include schemes that allow access to benefits in cases of financial hardship, as is the case with some schemes in Australia, New Zealand and Ireland.

In its explanatory note announcing the suspension, HMRC said that transfers made to schemes that are not QORPS would not be tax free. Those who transferred pension savings into a pension scheme that is no longer a QORPS under the new rules, but who did so before the scheme ceased to be a QORPS, would not be affected, HMRC said.

"You will need to satisfy yourself that the scheme you are transferring your pension to is a QORPS," HMRC said.

"As part of your checks you should always confirm with the scheme manager of the scheme to which you want to transfer whether that scheme meets all of the requirements to be a ROPS, including the Pension Age Test, from 6 April 2015 onwards," it said.

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