Rex Cowley examines the big players in the QROPS market and assesses which jurisdictions are best for domiciling a pension scheme should you choose to move it from the UK.
Qualifying Recognised Overseas Pension Schemes (QROPS) have now been set up in over 47 countries worldwide and this list is expected to continue to expand. This begs the question which of these jurisdictions is the ideal location for domiciling one’s pension scheme should they choose to move it from the UK.
In order to answer the question on domicile, one first has to really understand what the client’s position is and what their aspirations are both now, medium and long term.
Answers to these questions will provide vital clues as to the jurisdiction most suitable for the individual. It is also important to understand that the main phases associated with retirement are wealth accumulation followed by wealth decumulation and for some clients the QROPS will be used to continue to receive contributions to build up their retirement assets whereas other clients pension assets will be effectively un-packed to provide income during retirement.
It is also not uncommon to see certain expat customers simply allocate pension assets as part of an inheritance to children or grandchildren as they simply have no need for income from those assets due to their overall wealth.
The question for those who have retired to sunnier climates is whether they ever intend to return to the UK or if their expectations are to pass away in the jurisdiction in which they live and under these circumstances tax consequences of a QROPS scheme dependent on the jurisdiction in which it is based becomes important. Hence, in certain instances it might be better to have a domestic scheme which has a QROPS status in the country of residence or alternatively an international scheme which is domiciled elsewhere.
For some customers, there is always the idea of returning to the UK to retire and for others the prospects and career opportunities that come with an international expatriate lifestyle sees them working in multiple jurisdictions over the course of their life. Again for these types of individuals different jurisdictions and the different QROPS propositions available will be more suitable for them.
King of the QROPS
QROPS can be broken down into two main types of schemes. These are domestic schemes for residents in a location where the scheme is domiciled and registered. The others are domestic schemes, which cater for domestic resident members together with non-resident international members.
When one looks at the key jurisdictions in terms of QROPS, Australia, New Zealand, Ireland, Jersey, Guernsey, Isle of Man, Gibraltar and Malta can be seen as the larger providers of QROPS schemes. However, the majority of schemes in Jersey, Australia and Ireland cater for local resident members rather than international members. The rest of this article focuses on the comparisons between those schemes which specifically cater for international non-resident members.
South East Asia
Hong Kong, Singapore and New Zealand have been the main providers to the South East Asian market space. However, the HMRC black-listed Singapore in 2008 following the suspension of the Panthera scheme and no further schemes will be sanctioned from Singapore, effectively removing it as a jurisdiction.
As of 2011, Hong Kong has suffered a similar fate where HMRC is not authorising any new QROPS from this jurisdiction due to creativity around the use of a double-tax treaty agreement, which allowed UK residents to hold a QROPS and benefit from a preferential tax rate. The April budget 2011 has effectively closed this loophole and Hong Kong as a provider of new schemes.
New Zealand, which is one of the main recipients of QROPS business has come under significant pressure as many international members of New Zealand resident schemes have been utilising the New Zealand legislation to effectively cash in their pension schemes. Whilst this practice is not illegal, it does raise significant questions around the ethics and the spirit of the legislation rather than the letter of the law. Much activity is now taking place in this area as it is quite clear that New Zealand and its reputation as a financial services centre is being put in question by this kind of practice. The long term outcome for New Zealand is uncertain but with very strong links between New Zealand and the UK one must expect that a black-listing of New Zealand is unlikely and rather reform is on the cards.
Mediterranean Regions - Malta and Gibraltar
Gibraltar had struggled for a considerable period of time to effect its schemes with much dialogue between itself and HMRC. However, Gibraltar has finally got to a position where it is now seen as a QROPS jurisdiction with a number of schemes having been launched. Malta on the other hand undertook significant work in terms of structuring itself as one of the only true EU jurisdictions to offer QROPS. This in itself should be a significant competitive edge over non-EU jurisdictions as the possibility of black-listing an EU jurisdiction is almost nil given that its compliance is equivalent to any other jurisdiction in terms of its membership and that would include the UK.
British Offshore Islands
Within Jersey, Guernsey and the Isle of Man the only two contenders for international business is Guernsey and the Isle of Man.
Guernsey, which is seen as the market leader in terms of QROPS provision has forged a sensible path in this market space. It is one of the few jurisdictions which engaged with HMRC early on in 2008 and where the Guernsey Income Tax Authority gave clear commitment to UK HMRC and legislated against QROPS abuse. Since then a Code of Conduct has been produced by the Guernsey Association of Pension Providers, providing Guernsey with a further competitive edge as the Code of Conduct provides real clarity as to the behaviour of the product providers who have signed up to the code. This clarity becomes very important for advisors as it gives them certainty around the schemes which they use when advising customers. It also raises questions over any provider who has not or does not adhere to the code.
The Isle of Man which initially was level pegging with Guernsey and had developed 50c legislation in November of 2010 was seen as a potential leader in this space. However, the way in which the 50c legislation was marketed raised serious questions over its legitimacy and therefore to date no 50c scheme has been approved or sanctioned by HMRC. At this point in time, the HMRC review of the 50c legislation continues, however, a conclusion is expected to be reached shortly. As said before in a previous article the 50c legislation has been written specifically to comply with the QROPS qualifying criteria and if one had to take a view, a positive outcome seems likely.
The following table looks at a number of criteria which have been used to score the different jurisdictions based on the level of expertise, credit ratings and other quantitative rankings. The conclusion that can be drawn is that the islands that have the most expertise in terms of fiduciary practice are also the islands that are most equipped from an administration and operational perspective. It is also interesting to note that these jurisdictions themselves have the most robust legislation covering Trust and Pensions however the absence of an ombudsman with the exception of the Isle of Man is common.
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For those international customers it would make sense to consider Guernsey as a first choice based on its compliant approach with regards to QROPS and the clarity its Code of Conduct brings. In addition, the skills and expertise within the island with relation to fiduciary and trust structures and the administrative infrastructure clearly is an advantage over many other jurisdictions. However, the introduction of 50c and the outcome of HMRC’s review, if positive, will challenge Guernsey as the leading jurisdiction. In addition, Malta and Gibraltar, whilst outside runners, are clearly still in the race.
The most important point on QROPS in reality seems less about jurisdiction and more about the quality of advice and the importance of truly understanding what the client’s objectives are, both in the short and long term are the paramount drivers in terms of jurisdiction selection. Then it becomes a choice of a product provider who can evidence they are robust, ethical and adhere to the obligations as a QROPS provider both playing within the letter and spirit of the law to ensure that plan members are not met by unwarranted surprises which could cost them dearly in terms of tax and punitive charges.
Rex Cowley is a co-founding member of the specialist international pension provider Overseas Trust and Pension and active pension and retirement practitioner. He is also an authority and author on international pensions and the founder of the consultancy and research practice NewDawn. Rex sits as an independent on industry expert panels and expatriate financial clinics and lectures on retirement and pension provision around the world.