Since the 6th of April 2010, the normal minimum pension age in the UK has been 55 years old.
However, in many other countries across the European Union (EU) and indeed the world, pension benefits can be taken as early as 50.
This has caused some confusion in the QROPS industry over whether to follow the UK’s rules, or those of the local jurisdiction.
QROPS in brief
QROPS – or Qualified Recognised Overseas Pension Schemes – are overseas pension schemes recognised by Her Majesty’s Revenue and Customs (HMRC) to accept a UK pension.
This allows a UK pension holder living abroad to consolidate all their UK pensions into one efficient structure, benefit from a wider investment choice, and also – when they have been abroad for over five years and the fund begins to follow local rather than UK legislation – enjoy relief from UK income and inheritance tax.
Yet a debate is currently underway about how QROPS providers should handle the minimum retirement age.
The debate
HMRC states that to be recognised as a QROPS, a scheme must meet certain regulation pension scheme conditions – including the requirement that “the pension normally can’t start earlier than age 55.”
Yet after five years, a UK pension fund transferred into a QROPS should begin to follow the rules of the jurisdiction it is based in, and not the UK’s legislation.
This is where the confusion lies.
Although neither the minimum age requirement nor QROPS legislation has changed, concerns began to be raised within the industry after the “Project Bloom” announcement.
Led by HM Revenue & Customs in partnership with the UK Pensions Regulator, “Project Bloom” is a tax crackdown that in part is focusing on so-called pension liberation schemes.
As part of this crackdown, rules for registering pension schemes were tightened in October 2013, and many pension advisors believe a stricter adherence to the income benefits before age 55 rule may follow.
Industry eyes on Malta
Whilst several high profile jurisdictions allow a resident to begin taken pension benefits at age 50, the current debate in the QROPS industry has centred on Malta, in part fueled by its popularity as a QROPS destination.
Some QROP scheme administrators state that people who have not been resident in the UK for over five full tax years can begin taking their Malta QROPS pension income at age 50.
Yet many financial authorities in Malta have declined to take a stance either way, instead highlighting the breadth of their legal obligations.
According to Joseph Bannister, chairman of the Malta Financial Services Authority, Malta’s authorities are simply required to report all activity involving UK-originating pension funds to the UK.
“Therefore, if anybody [with a Maltese] QROPS withdraws before [age] 55, then HMRC will know, and it is up to them to decide what action to take,” he stated.
“Although our rules state you can withdraw at 50, it does not mean you can flout the [UK’s] QROPS rules.”
Pension liberation concerns
In response to this “grey area” of legislation, one major QROPS provider has decided to clearly disallow benefits being taken from their Malta QROPS before the age of 55.
Reasons include being question by pension trustees specifically whether benefits would be given before age 55, and the threat of delisting by HMRC if, at a later stage, such action would be taken.
This caution is in spite of the fact that Maltese law permits people to take pension benefits at age 50, and HMRC cannot raise an unauthorised payment charge to individuals who have been outside the UK for over five years.
Yet until an official statement is released, QROPS providers will have to choose which path they wish to follow – either to err on the side of caution and disallow pension income before age 55, or believe that the fund should follow local rules when an individual has been outside of the UK for five years.
If you require further clarification, please do not hesitate to contact one of our advisors.
About John Cassidy
