Qrops crackdown in Australia, and Canada could be next
HMRC has delisted thousands of overseas schemes that could previously accept pension transfers from Britain
HM Revenue and Customs has launched a crackdown on overseas schemes open to UK expats who want to move their pension abroad, with hundreds being removed from its approved list.
Australia is one of the countries with the most Qualifying Recognised Overseas Pension Scheme (Qrops) providers removed, and has just one – the Local Government Superannuation Scheme – remaining on the list.
Other countries to see significant culls in the number of Qrops available to expats include the Republic of Ireland, down from 797 schemes to just 56. Switzerland has fallen from 100 to one scheme, Spain has fallen from 16 to two schemes, and South Africa has dropped from 29 schemes to seven, according to international adviser Chase Belgrave, which warned that Canada could be next.
Savers who transfer their pension to a non-qualifying scheme will face a 55pc tax charge, imposed by HMRC, on the money in the pot.
A Qrops is an attractive option for expats who wish to take out of the equation the currency risk on their pension payments .
The cull of Australian schemes was not a surprise. Financial advisers had expected a number of them to disappear because they allowed expats to access their pension before they reached 55, so they would not be deemed Qrops by HMRC.
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Earlier this year HMRC wrote to overseas schemes that accept UK transfers warning that they must comply with the new pension freedom rules which came into force on April 6.
Under the new rules, which allow savers to take their whole pension pot as cash, pension schemes must prohibit members from accessing their savings before the age of 55, unless the member is retiring early due to ill health.
Many overseas schemes allow under-55s to take some of their funds early in some circumstances, such is if they are suffering financial hardship. They are unlikely to change their rules to accommodate the UK requirements because this would disadvantage their local members.
Schemes had until June 17 to respond and last month HMRC suspended the list of qualifying schemes due to concerns that many breached the new rules.
Justin Harris of Chase Belgrave, said: “The dozens of Australian entries have now been reduced to just one, and this is only open to certain local government employees. However, it is important to understand that Australian residents are still well catered, for with many options available within other jurisdictions.”
James McLeod, of financial advice firm AES International, said anyone who transferred their pension prior to April 6 will not face the tax charge of 55 per cent relating to non-qualifying schemes. Those who initiated a transfer after April 6 should contact their Qrops provider and ask whether the tax charge will apply. In some cases there may still be time to cancel the transfer.
Mr Harris said that “virtually every Canadian Qrops” is also in danger of being delisted in the near future – again because these schemes tend to allow savers to cash in their pension benefits before the age of 55.
“It is still possible for Canadian residents with UK pensions to take advantage of the benefits of Qrops but it is more important than ever to seek the advice of expat specialist financial planners who will be able to do the due diligence necessary to ensure that a destination scheme is and will remain a Qrops for the long term,” he said.