These were introduced by HMRC in the UK in 2006 to help ease the process of transferring a UK pension benefit into an overseas arrangement for people who were emigrating from the UK.
Prior to this legislation, it had always been possible to transfer a UK pension overseas but this was always subject to satisfying HMRC that the receiving scheme was a broadly similar arrangement to the UK pension structure and they would then give individual approval if all was well.
With the increasing number of people moving overseas, the numbers of requests became huge and hence the streamlining of a system to deal with these people saw the birth of QROPS.
As is always the case, people within the financial services industry will look for ways to exploit any new legislation for the purpose of developing new business and with QROPS this was no exception. However, a minority of organisations chose to abuse the system and advocated, Â“pension bustingÂ” which enabled UK pensions to be transferred through QROPS and then to be fully encashed.
This was never the intention of HMRC and it was no surprise when they announced in December 2011 that they were going to review QROPS. In April last year, new rules were introduced and QROPS providers were de-listed to ensure that pension busting could no longer be abused.
What no one was expecting was the wholesale de-listing of Guernsey based QROPS providers and in one single action, a whole industry in Guernsey came to an abrupt halt.
No longer could these Trust Companies take new QROPS business but they did of course have many existing clients who had invested in QROPS. Thankfully, HMRC made it clear at the time that individuals should remain unaffected as long as the Trust Companies complied with HMRC requirements.
Just over a year later, HMRC has recently issued further draft legislation for QROPS, which in itself should not affect existing arrangements but we await the details to see what the implications may be for the future.
One thing is for certain, they will look very closely at any attempts at pension busting going forwards and may well look to pursue recovery of unauthorized payment charges of up to 55% retrospectively!
Whilst on the subject of tax, on too many occasions, I have spoken to people who did indeed withdraw all of their pension money having been advised that this was a tax free payment. I am sorry to say for them,this is not true at all. As a Spanish tax resident, any amounts taken from a QROPS should be declared for income tax purposes. The fact that tax was not deducted at source by the QROPS provider is irrelevant, it is the tax residency of the individual which dictates what should be declared and what tax is due to be paid.