Hard on the heels of the delisting by the UK’s Inland Revenue of more than 300 Qualifying Recognised Overseas Pension Schemes (QROPS), Gibraltar has set itself up as the latest and most secure EU jurisdiction in which to transfer international pensions.
Members of the local Association of Pension Fund Administrators (APFA) put on hold all requests to transfer any QROPS into the territory three years ago after a letter from HMRC raised issues around taxation of benefits and created uncertainty over whether any QROPS there would meet with approval.
“We were unwilling to put at risk Gibraltar’s reputation and integrity, whilst reaching agreement and gaining government approval on arrangements to meet the QROPS challenge”, APFA chairman, Steven Knight explained.
Pension benefits for Gibraltar residents attract a Zero Rate tax, but under an amendment to its Tax Act that will be approved next month, taxation of 2.5% will be applied to distributions from a fund to beneficiaries of imported pension schemes.
The new Government that was elected in December has moved quickly to resolve the historic QROPS impasse and says it “is satisfied that these proposals provide a basis that is in consonance with the aims of those other jurisdictions which allow the exporting of pension funds”.
In addition to requiring a minimum retirement age of 55 (except in very specific circumstances relating to chronic ill health) and a maximum commutation of 30% of the pension fund, Gibraltar’s government has moved to further protect the UK’s interest by insisting that it will only approve any request to transfer an imported pension scheme to another territory if the same or greater conditions are in force.
As Knight remarked: “The new law in Gibraltar has been introduced specifically to enable overseas pensions to be managed and controlled here having regard to the new rules introduced by HMRC for QROPS, which are first and foremost intended to provide a pension income into the future.
“Gibraltar aims to attract long term business and by introducing legislation and practice that is believed to be fully compliant with HMRC rules, individuals have certainty because The Rock is the place for QROPS that provides the least risk.”
Thousands of pension schemes have been transferred out of the UK in order to gain greater control of investments, a better level of income and the ability to leave whatever remains of the fund at the time of death to anyone, usually without deductions.
Sources suggest that 10 per cent of all pension funds that have been transferred out of the UK have been moved to Guernsey; the jurisdiction was thought to have gained a third of the market in the first half of 2011 alone!
The removal of Guernsey-based QROPS and some from Jersey and the Isle of Man from the HMRC register of compliant schemes, follows earlier problems with Singapore schemes and those in New Zealand that allowed all of the fund to be withdrawn in cash and others that permitted investment by beneficiaries in their own residential property.
“With the UK government increasing restrictions on pensions – the last Budget scrapped age-related allowances, and further ‘modifications’ were mooted for 2013, for example – there is now an added incentive for people to consider a QROPS solution to protect their pension funds – it’s a powerful incentive”, Knight observed.
Gibraltar’s Minister with responsibility for Financial Services, Gilbert Licudi QC, said that the new legislation “opens up a line of business which has previously, in effect, been out of reach for Gibraltar. It will create work for pension schemes administrators and it will also create income from taxation for Gibraltar in respect of distributions from the imported pension schemes”.
However, industry practitioners involved in the business of importing pension schemes to Gibraltar remain responsible for ensuring that their activities fall squarely within the rules applying in countries outside Gibraltar as regards pension transfers, he added.
The APFA is aiming “to produce firm local guidelines to ensure that grey areas exploited in other jurisdictions are fully addressed and not operable within the Gibraltar framework”.
An Association seminar for all sectors of the finance centre involved with overseas pension is being held next month to ensure its members have a common understanding of the spirit of HMRC rules, what is expected of them, and uniform handling of imported retirement pensions. Marcus Killick, chief executive of the Financial Services Commission, is to make a presentation.
UK residents considering relocating their pensions take comfort in the fact that Gibraltar’s legal system is based on UK law, English is the main language and the jurisdiction is covered by EU regulation, Knight maintains. Several people have deferred a decision on where to place their pension fund until the jurisdiction had resolved its situation and those people had already been making contact to press ahead.
Gibraltar’s location also lends itself to those expatriates with retirement funds who live in nearby Spain, Portugal and Morocco, he feels, because some see personal contact as an important factor.
“The position of Greece in the EU has generally made people much more risk averse and they tend to favour future certainty, which is where Gibraltar’s position as the latest compliant jurisdiction puts it in pole position for QROPS”, Knight asserted.
The new Gibraltar law does not affect those with Gibraltar occupational retirement schemes, but there are a small number of pension schemes that were imported since 6 April 2006 when QROPS transfers became possible and the law will be made retrospective to apply to them.
As APFA chairman, Knight, noted: Its been a long and frustrating wait, but we can now remove the uncertainty for independent financial advisers and people who already have QROPS in other jurisdictions, safe in the knowledge that Gibraltar is a fully compliant, regulated EU jurisdiction.