HM Revenue and Customs (HMRC) has already signalled that overseas pension rules will change in April 2017.
Besides some tax tweaking to bring pensions like Qualifying Recognised Overseas Pension Scheme (QROPS) into line with onshore pensions, the big shake up is likely to be with offshore pension providers.
The grand design is to turn the screws on rogue QROPS advisers and providers who flout tax rules.
Changes on the way
The QROPS changes from April, subject to government approval after consultations close in February are:
- Providers must be regulated in the country where they are based – which means providers cannot set up schemes without government oversight in a bid to cut out the rogues starting occupational pensions to attract pension liberation clients
- Scrapping the 70:30 rule that stops QROPS providers outside the UK offering pension freedoms available to retirement savers in the UK and European Union. The rule limits tax-free lump sums to 30% and insists providers keep the remaining 70% of the fund intact to pay pension benefits to members once they retire.
- Expats returning to the UK will pay tax at their marginal rate on 100% of QROPS benefits rather than the current 90%
- Payment provisions for QROPS savers will double from five to 10 years
The result of these changes is likely to see fewer QROPS rogues in the market place and a more regulated offshore pension landscape.
What to watch out for
The key for expats is that QROPS and UK pensions will both offer pension freedoms, that will allow them to draw some or all their pension pots more easily.
Some questions remain unanswered in the consultation papers, like will QROPS keep their unlimited lifetime allowance and if expats will keep gross pension payments in a currency of their choice.
These are important advantages that allow them to pay local income tax on pension earnings and a way to avoid the effect of currency exchange rate fluctuations.
March is likely to be the key month for confirmed QROPS rule changes, giving providers and retirement savers short notice to make any pension changes by the start of the next financial year on April 6.
The busiest QROPS location is likely to be Malta – the only financial centre with pension freedoms already available.
Around 13,700 expats transferred £1.5 billion to QROPS in the 2015-16 financial year.