Demand for overseas pensions among expats will increase following changes outlined by the Government this week, the founder of a global advisory company believes.

The Government is looking to equalise benefits of foreign and UK pensions.

A new proposal, referred to in the ‘Foreign Pension Schemes policy paper’ issued on 5 December, relates to allowing Qualifying Recognised Overseas Pension Schemes to operate the same pension freedoms as UK registered pension schemes.

Some QROPS are limited in the pension benefits they provide, with a minimum of 70% of the pension fund needing to provide an income for life.

These schemes would no longer be restricted by the 70% rule and will continue to qualify as a QROPS under the reforms, as long as the provider of those schemes is regulated or the scheme itself is regulated.

Nigel Green, devere founder and CEO, said: “Should this proposal come into effect, there would remain many important and universally-recognised financial benefits of QROPS.

“Indeed, I expect demand amongst expats not just continue, but to increase. This is because the world is becoming ever more internationally mobile and, as such, international retirement planning – of which QROPS are an integral part – is a growth area within the sector.”

He pointed out, however, his firm “fundamentally disagree with the UK government’s ‘pension freedoms’ as they stand”.

The reforms were welcomed by Old Mutual Wealth as “potentially good news for consumers” as it said they “will ensure greater consumer protection for QROPS”.

Rachael Griffin, OMW personal financial planning expert, said the Finance Bill, issued on 5 December, confirmed the intention of the Government to level out how income is taxed, and how money is taken from QROPSs to bring them into line with UK registered pension schemes.

But she pointed out the draft Finance Bill issued alongside the Policy Paper does not address the removal of the 70% rule. Old Mutual said it was “essential that the IHT exemptions afforded to QROPS is maintained”.

Ms Griffin said: “Equalling out the tax treatment of UK and foreign pension schemes has been much anticipated. There remain clear advantages to using QROPS for people who are at risk of reaching the lifetime allowance limit on their UK registered pension scheme, and looking to move permanently overseas. QROPS have become a mainstream pension solution for expat clients and we see this continuing.”

From 6 April 2017, 100% of the income received from a QROPS by an individual who is UK resident for tax purposes will be subject to UK income tax, thereby bringing it into line with the taxation of income from UK registered pension schemes. Currently, only 90% of such QROPS income is subject to UK income tax, meaning higher-rate payers are taxed at only 36pc, but this will become 40pc.

Ms Griffin said: “The industry figures show a significant growth in the QROPS market since these schemes were introduced in 2006. That growth has started to level off, albeit with a short spike in 2014/15.

“This suggests that the market is maturing at around £1.5bn a year. The average size of a QROPS transfer is over £100,000, highlighting the importance of these cases from a UK tax revenue perspective.”

Proposed revisions in the papers

The papers stated legislation will be introduced in Finance Bill 2017 so that:

• where a foreign pension or lump sum is paid to a UK resident, 100% of the pension arising will be chargeable to UK tax (to the same extent as if they had been paid from a registered pension scheme)

• no new pension schemes can be established under section 615 of ICTA 1988, and no further contributions can be made to existing schemes. Funds accrued in a section 615 scheme before 6 April 2017 will continue to be paid out using the existing rules

• the tax treatment of funds in RPSs based outside the UK will be more closely aligned with that of UK-based RPSs
  UK tax charges can apply to a payment by an RNUKS to an individual who has been resident outside the UK for less than 10 tax years

• the 70% rule will be removed from the conditions that a pension scheme has to meet to be an ‘overseas pension scheme’ or a ‘recognised overseas pension scheme’ and the pension age test is revised so that additional payments may be made and the test still be met. As a result if a non-occupational pension scheme is not regulated and the provider of that scheme is not regulated, it will not be able to be a QOPS or QROPS