Strict rules govern the workings of a QROPS offshore pension – and the UK taxman has some severe punishments for breaking them. The problem with policing a QROPS scheme is that no single regulatory body is responsible for managing the pension.
Cross-border co-regulation is almost impossible:
- The tax rules are imposed in the UK
- The QROPS master trust and provider can have bases in different countries with their own regulators
- The QROPS investor can live in any tax jurisdiction that they choose
To counter this opportunity for exploiting loopholes, HMRC puts the responsibility for the integrity of a QROPS scheme on the providers.
How the QROPS rules are broken
Inevitability, these permutations lead to some advisors and providers trying to push the QROPS investment envelope mainly in two areas:
- Offering larger tax-free cash withdrawals than allowed – the rules state that up to 70% of any fund transfer must be kept in the QROPS to pay retirement benefits, but some advisers suggest much more is available
- Offering cash withdrawals and benefit payments at an earlier age less than the minimum retirement age
- Implying that pension savers can invest in assets disallowed by HMRC, like residential property
The five-year QROPS reporting rule
Many of these rule breaches involve the QROPS pension scheme's five year reporting rule – this states that fund managers must inform HMRC of any payments from a QROPS within five years of the start of the pension scheme. If a QROPS provider lets pension investors take any of these unauthorized cash withdrawals, the provider risks losing their QROPS status. Loss of status immediately means no UK pension scheme can transfer cash to the provider. The pension investor risks a penalty of 55% of their transfer fund value for breaking the rules. Speak to the leaders in Qrops, Qrops.net for more information.