Flexible Access Drawdown update – October 2017

By October 13, 2017News

Further to our previous news article on 1st October 2015 where we first discussed the options available for Guernsey pension members, this update discusses the pragmatics of Guernsey Flexible Access after 2 years of practice, and further in  Guernsey legislation (pension regulation).

Which Guernsey pensions can have access?

The 2015 legislation provided for members of s.40 and s.157A pensions to consider their options for flexible access with respect to the legislation of the jurisdiction which sourced their pension funds.

So, if your pension originally accrued in Denmark, it would be the flexibilities of Danish pension legislation you would consider.  If from the UK, the UK flexibilities would apply.

Thus pensions that are or were a QROPS, with UK source funds in them would have the option of flexible access drawdown.

Options for Guernsey Delisted QROPS

For delisted Guernsey QROPS, which are now OPS, this offers the ability to take partial or full access if the scheme of which you are a member, provide this service.

It should be noted that not all providers offer flexible access, and members should carefully consider their options and take appropriate advice because Guernsey delisted QROPS have grand fathered benefits by HMRC.

Frequent misleading facts and red herrings, 55% tax charges and IHT issues, the 70% rule

If you meet the criteria laid out under, you can avoid tax issues particularly the 55% tax on unauthorised payments. Due to changes in pension legislation in Guernsey, the IHT issue requires less mitigation, although you may still need to transfer to a separate pension plan to achieve flexible access.

The 70% rule is often also a red herring, Delisted QROPS lost ‘membership’ of QROPS status so they have no reporting and the undertakings given to HMRC such as the 70% rule, strictly speaking are not binding. The introduction of pension regulation at scheme level in Guernsey also assists.

Tax Implications

This news release is provided for general purposes and does not constitute tax advice.

Concept shall not be held responsible for any liability or loss which may arise directly or indirectly from any reliance placed upon the on information contained in this document.

Although flexible access is paid out gross. Taxes may be due in the country of residence of the member. Taxes may be due the UK, although as a general rule, those non-resident of the UK for more than 5 UK tax years may be outside the application of certain UK tax charges and the unauthorised payment regime.

There are exceptions so tax advice should be taken. As a simple rule if you are aged 55 or over and you have been out of the UK more than 5 UK tax years, full or partial flexible access is worthy of consideration.

No Guernsey tax is deducted if you are not resident in Guernsey.

My Scheme doesn’t offer flexible access?

If the scheme you are in does not offer flexible access you may consider transfers to schemes which do.

It is possible to transfer from one Guernsey Delisted scheme to another and from other schemes in other jurisdictions, to a Guernsey plan.

What criteria do I need to meet to transfer?

Transfers from other schemes, including QROPS in other jurisdictions are possible. If you are under age 55, UK resident or have been UK resident in any of the last 5 full UK tax years, transfer may not be in your interest, or be acceptable to your existing scheme.

This is a very broad overview, other criteria exists, not least further changes introduced by the UK Finance Act 2017 which apply to transfers since March 2017.

Why would I consider a transfer to a Guernsey Scheme?

Members consider transfers for a variety of reasons, costs, service, tax benefits or stability of jurisdiction to name some.

Whilst other jurisdictions can pay flexible benefit, it may be that the jurisdiction in which the members reside does not benefit from tax agreements in place and thus significant taxes may arise.
As payment of benefits are generally made gross from Guernsey schemes there is often no need to consider tax agreements irrespective of where the members is living or will live. This is a significant benefit and a reason members frequently seek a transfer to Guernsey.

In addition, members of Guernsey schemes may prefer to have the certainty that whenever a member becomes resident, (assuming that is not Guernsey) benefits will be paid gross.

Guernsey pension legislation also offers in certain circumstances other flexibilities, including the possibility to invest in property and other non- standard assets and the ability to take loans from the scheme.

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