Guernsey Qualifying Recognised Overseas Pension Scheme (QROPS) experts are warning some retirement savers with money in closed schemes may have problems with new flexible access rules starting in April.
The rules allow pension savers to spend some or all the money in their funds – drawing the first 25% tax-free and then paying income tax on the balance.
Guernsey QROPS providers say they are receiving inquiries from pension savers about how they can draw their cash under the flexible access rules.
The only QROPS jurisdictions that have confirmed that flexible access will be allowed are Gibraltar and Malta.
The governments in both are acting to amend pension and tax rules to make flexible drawdown available to savers.
No way out
However, current pension rules in Guernsey do not allow flexible access.
Bethell Codrington, global head of pensions for the TMF Group, said the Channel Island’s tax rules and some QROPS provider schemes bar switching funds to another QROPS with ‘more favourable’ rules for clients.
Talks between QROPS providers and the tax authority confirm that no process is available for transferring pensions without explicit permission from the tax office.
Guernsey QROPS providers fear that if the issue is not addressed, the problem could trigger complaints and legal action from QROPS customers.
Guernsey was one of the leading QROPS jurisdictions until March 2012, when HM Revenue & Customs (HMRC) in London suspended 300 schemes overnight, leaving just three QROPS on the island.
Since then, some schemes have relisted and many more have opened.
According to the latest QROPS List published by HMRC on February 1, 2015, the island now hosts 88 QROPS.
Nevertheless, millions of pounds belonging to hundreds of investors are still held in former Guernsey QROPS.
Not all the schemes are stopping transfers out, but many QROPS investors could have their retirement plans shattered because their money is suspended in a pension limbo as a result of their scheme delisting in 2012.
“If someone is in this dilemma, they should be asking their advisers and providers what is going to happen sooner rather than later,” said Codrington.
“They need to look at what advice was given to them when they transferred to a Guernsey QROPS and any tax issues if they transfer money from Guernsey to another jurisdiction.”