Tax Man’s Axe May Fall On Canada QROPS

Canada Qualifying Recognised Overseas Pension Schemes (QROPS) look like the next contenders to bite the dust in the British tax man’s clear out of offshore pension schemes that pay out to the under 55s.

Most Canada QROPS have few age restrictions allowing retirement savers to cash in their funds when they like.

This contravenes the new British pension age test applied to pensions that restricts payments to those aged 55 or older.

The rule came in with the advent of pension freedoms in the UK that let retirement savers spend or invest their pension money as they wish once they are 55 years old.

More than 3,700 QROPS have already been axed from HMRC’s QROPS List in the past month because they breach the pension age test.

The main victim was Australia QROPS.

3,700 QROPS delisted

Last month, the pension providers in the country had 44% of all QROPS listed, but at a stroke lost 1,652 schemes, leaving just one open.

Other QROPS countries to suffer included Switzerland, the Isle of Man, Jersey, New Zealand and Ireland who bore the brunt of the rest of the losses. Eight of the 45 QROPS centres worldwide were closed when all their pensions were delisted.

Canada saw 33 QROPS close, reducing the number of available for expat pension transfers at 62, down from 95.

The latest QROPS List published on July 15, had 665 pensions left – 3,702 were included on the list on June 1.

HMRC refuses to discuss policy relating to individual QROPS or financial jurisdictions, but many Canada QROPS savers expect to see their pensions delisted when the next list is published on July 15.

Pension age test

The pension age test is applied to QROPS from April 6, 2015, when flexible access pension changes took effect in Britain.

Many are worried that transfers to listed QROPS after that date until the list was suspended on June 17 will face tax penalties from HMRC.

Pension rules state that transfers to non-recognised QROPS are unauthorised withdrawals of funds that should be taxed at 55%. Other penalties and interest may also apply.

HMRC has clearly stated that the responsibility of checking whether a pension meets QROPS rules lies with the retirement saver and inclusion on the tax man’s list is no guarantee the scheme is not breaking the rules.

To join the list, pension providers self-certify they meet QROPS standards and are not vetted by HMRC.