New QROPS regime “may prompt EURBS mis-selling”

Proposals to reform the rules around qualifying recognised overseas pension schemes (QROPS) may prompt a spate of mis-selling of competing products, an expert has warned.

The uncertainty over the future of QROPS may push retiring expats towards European Union Retirement Benefit Schemes (EURBS) which may not meet their needs, Paul Gregson, business development manager at AML Evolution said.

From 6 April, HMRC has proposed a new rule which requires any QROPS to give the same tax treatment to its members whether they are resident or non-resident of the scheme's jurisdiction.

This would prevent a situation such as that in Guernsey, where residents who are members of QROPS pay 20% tax on their pension but non-residents pay no tax.

HMRC's rule change will mean Guernsey must alter its primary legislation to equalise the tax treatment of residents and non-residents.

The move will keep the QROPS trade alive, providers say.

The process of changing the law may take up to eight months and, in the meantime, schemes will technically no longer comply with HMRC rules.

This will leave many people who currently have Guernsey-based QROPS "in limbo", said Gregson, whose firm is a QROPS provider.

Gregson said people in QROPS during this period may be subject to Guernsey pension income tax of 20% or HMRC's unauthorised payment charge of 55%.

He added the uncertainty over the future of QROPS in Guernsey may prompt increased sales in European Union Retirement Benefit Schemes (EURBS) to new customers, on the basis that they will not be subject to future rule changes.

EURBS have most of the benefits of QROPS including transfers to other countries, tax benefits and investment freedom.

However, EURBS can only be used within the European Union and are not recognised by France or Germany, Gregson said, meaning they will not be suitable for some retirees but may be sold to them anyway.

Guernsey has attempted to quell fears over the future of QROPS in the jurisdiction.

Rob Gray, director of income tax at the Guernsey Income Tax Office, said: "There is no substance to any suggestion that Guernsey will force all QROPS based in the jurisdiction to de-register."

A Guernsey government spokesman said that the law change should not take as long as eight months and could be changed before the end of March.