What are the Penalties if an Offshore Pension does not follow the QROPS Rules?

It is the duty of any offshore pension, registered as a QROPS with Her Majesty’s Revenue and Customs (HMRC), to follow the rules set out in the legislation.

It is the responsibility of the trustees or administrators of the QROPS to ensure that any payments made to their members, in respect of a transfer in from a UK pensions, are within UK limits and reported to HMRC within the 5 year reporting period.

Failure to follow the rules can have consequences, both on the UK pension member and the offshore pension scheme that has registered as a QROPS.

Both the QROPS and the member should be aware of the following:

  • A UK pension member would face a tax charge of 55%, on the excess of any UK pension funds transferred overseas, above the UK Lifetime Allowance;
  • An unauthorized payments tax charge will apply if the member accesses the pension benefits before the age of 55 (from April 2010);
  • In addition an unauthorized payments charge will apply if the member receives greater than 25% of the transfer fund in the form of a lump sum, from the overseas scheme, within 6 years of overseas residency;
  • The QROPS has to report on any transfer made to another scheme within the reporting period. In this event, the receiving scheme has to be another QROPS.
  • The unauthorized payments charge would be 40% of the funds value, with an additional surcharge of 15%, and would be payable by the member.
  • An offshore pension that continuously fails to follow the QROPS rules, could have their registration removed from the HMRC QROPS list and effectively be banned from receiving UK pension transfers in.