A decision to shun flexible access for the Qualifying Recognised Overseas Pension Scheme (QROPS) will disappoint thousands of expats with offshore retirement savings in Gibraltar.
The tiny enclave on the Spanish mainland was set to introduce new pension freedom rules along the lines of those enjoyed by retirement savers in Britain.
But in a surprising U-turn, the drafted rules were dropped last week after talks with HMRC and the Treasury in London.
“Gibraltar will keep its current arrangements that require members of QROPS schemes to retain 70% of their total funds to provide a pension income for life. The rate of tax on pension benefits taken from these retained funds will continue to be levied at the current rate of 2.5%,” the Gibraltar government said.
The move took the QROPS community by surprise.
Vote to keep 70/30 rule for QROPS
The Gibraltar government and local regulators had already signalled the new rules were due to go before lawmakers for rubberstamping after months of discussions to draft pension freedoms.
Old rules for QROPS tell providers to ring fence 70% of tax-relieved pension contributions transferred into their schemes to pay a retirement income for savers.
Under the pension freedoms, anyone aged 55 or older can draw as much as they like from their retirement savings.
Gibraltar Minister of Commerce Albert Isola said new local personal pension regulations ensure the highest standards of regulation and keep the financial centre a recognised QROPS jurisdiction.
Some QROPS commentators claim offshore regulators have misread the new UK regulations.
New pension test
Although the UK is opening the door for financial centres worldwide to introduce pension freedoms by removing the 70% rule, the legislation does not say they must change the way they pay benefits to stay QROPS but may change if they wish.
Gibraltar is one of the rising stars of QROPS, playing host to 51 of the pensions for expats.
Meanwhile, although Gibraltar dropped pension freedom measures from new financial regulations, other new rules aligning QROPS with UK registered pension rules were passed in a bid to avoid the British Overseas Territory losing QROPS status on April 13.
Providers must certify they meet the UK rules by that date or risk a ban from HMRC.