When a QROPS payment is made, the United Kingdom loses not only some assets but also the associated liabilities. Many of those liabilities are whole of life pension payments. Companies around the world have been desperate to “de-risk” their balance sheets by closing their defined benefit superannuation/pension liabilities in favour of accumulation designs. The UK government’s move to close transfers out of arrangements like NHS Pensions is going in the opposite direction to that trend. Recent developments in closing down QROPS is also harmful to the UK in the long run. It’s also not just the monetary aspect. While a healthy level of competition has always existed between the UK and Australia, it has in been in the context of a close co-operation and good will. Actions like the lack of indexation of UK State Pensions for expats here and this recent development erode the wonderful potential of that atmosphere.
My main interest is how retirement income can be made more sustainable and safer for Australians including UK expats who have decided to call Australia home. Naturally these recent developments have been quite disturbing for them. The harsh reality is that I think we are going to have to accept, to everyone’s surprise, that the total elimination of all Australian QROPS was the intent of HMRC. Unless there is some movement on that position, or one of the Australian associations or larger funds challenges their view, it’s time to focus on the future. This has two aspects to be considered.
The first is to evaluate and deal with the immediate ramifications, especially if you one of the SMSF QROPS. Your inclination may be to ignore the letter dated 29 June 2015 that you have received in recent days. I suggest you don’t. Jeremy Gordon has a tremendously thorough and considered article about Australian Qrops dealing with HMRC. His suggestion to insert an explanation that the fund has been excluded from being a QROPS as result of an action made by HMRC and that you avoid indicating that you agree with this decision, has great merit. A link to his excellent article is as follows ….. click here. Also read the sections about how you may protect yourself from HMRC rewriting their post 6th April 2015 behaviour. If you have a transfer received after 6th April 2015 and you have less than 5 clear years outside of the UK tax system, consider returning the funds on the grounds that the UK paying fund should not have made the transfer.
The second aspect is to start to restructure your retirement plan to take into account these developments. It becomes important to get as much post Australian retirement income into the exempt income category to free up bringing in UK pension monies periodically as tax efficiently as possible. Also consider how to make a defined benefit pension for life a useful layer of income in the retirement strategy – it removes some of the longevity, market and sequence risk from you back to the UK fund or Government.
The NetActuary Team