Aussie QROPS Fears As Expat Pension Rules Change


Australia pension providers fear superannuation funds may fail to meet strict Qualifying Recognised Overseas Pension Scheme (QROPS) rules from April.

HM Revenue and Customs (HMRC) in the UK has flagged the QROPS 70% rule will be scrapped in the next financial year giving more flexibility over pension freedoms but restricting pay outs to retirement savers under 55 years old.

In Australia, superannuation schemes can pay benefits to savers under 55, but hundreds of schemes lost their QROPS status last year due to this breach of UK pension rules.

HMRC is clarifying the pension age test rules from April. If a scheme fails the test, the administrators cannot claim QROPS status.

The new pension age test

The only payments allowed from a QROPS to a saver aged under 55 years old will be:

  • A serious ill-health lump sum
  • A short service refund lump sum
  • A refund of excess contribution lump

HMRC hopes giving overseas pension schemes more information about the rules will help administrators decide if their scheme meets the definition of a QROPS.

Australia has traditionally hosted the largest number of QROPS worldwide.

This number stood at 1,653 pensions in June 2015, the last time HMRC restated the qualifying rules. All but one of these QROPS was delisted for breaking the rules in July 2015 due to offering loans and benefits to under 55s.

Since then, the number of Australia QROPS has crawled back to 387 at the start of February 2017 – around 30% of all QROPS.

Fears super schemes will lose QROPS status

Providers feel the new rule change will impact the Australian market hard.

The Association of Superannuation Funds of Australia (ASFA) has asked HMRC if a super fund can meet the new pension age test and suggests splitting superannuation funds into accounts with funds from the UK and funds from elsewhere.

That way, says the ASFA, any payments to under 55s can come from money that was not transferred from the UK and avoid issues of taking tax-relieved contributions switched from a UK pension early.

“The overseas regulatory regime may permit the payment of a part benefit, prior to retirement age, in circumstances which would not be considered to meet the UK pension age test,” said the ASFA.

“Provided the overseas regulatory regime only permitted the payment of these benefits, and did not mandate them, it would be open to the trustees/operators of the overseas scheme to amend their governing rules to the effect that any member with any UK tax relieved monies would be unable to access such payments.”

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