Pensions: singapore sling

The gross is crack down on flexible expat pension scheme allowances introduced just two years ago.

Those moving their pensions to capital of Singapore to avoid heritage tax and purchasing annuities could face a 55 per cent tax bill from the British people government – and it could spreading to other expat destinations.

Offshore pensions, known as modification Recognised oversea Pension strategy (QROPS), have generated much involvement from Britons planning a new life abroad since they were introduced in April 2006.

Offshore financial advisor have promoted the strategy as a way round British people retirees being forced to take a lump sum payment and an rente by the age of 75, while still retaining tax alleviation granted on part made in the UK.

The figure of transportation to popular destinations has grown steadily in recent years. Legal power such as capital of Singapore, Hong Kong, Irish democracy and the transmission channel Islands all offer more lenient tax treatment on retirement income options, inheritance and lump sum payments from pension funds.

But trouble in determining how well oversea schemes are run and whether they truly will be used to provide pensions in retirement may have led to a crackdown by UK authorization.

In a little-publicised move, all capital of Singapore pensions were all of a sudden removed from the UK taxman's list of modification recognised oversea schemes on May 27. The pension fund industry believes other state could follow.

Under QROPS rules, those departure the UK on a permanent wave basis can transportation their pensions to an oversea scheme and retain their UK tax benefits after a retention period of just five years, providing the new strategy can demonstrate that at least 70 per cent of the fund will be used to provide a pension in retirement.

For those funds outside these rules, transfers to nonqualifying schemes could result in a tax penalty of between 40 per cent to a maximum 55 per cent being issued by HM Revenue & Customs against the pension holder, to claw back tax relief granted in the UK.

As Singapore does not levy inheritance tax on remaining pension pots upon death and some pensioners may avoid local income tax altogether, it has been heavily marketed by offshore advisers.

With the country now off the qualified recognised scheme list, those who have already transferred there will have to wait until HMRC issues more guidance on how the delisting of Singapore funds will affect them directly.

While HMRC refuses to disclose why individual funds have been dropped, the decision has surprised the pension industry. Many believe that persistent rumours of mis-selling in the Far East could be the cause.

Fund providers and UK independent financial advisers say investors are being targeted with "pensionbusting" promises, allowing them to take their funds partly or wholly in cash well ahead of retirement.

"With little or no regulation of advisers in many worldwide locations, they are clearly open to abuse, first from the product providers and second from the product distributors," says Sam Instone, an adviser with London-based AES International.

Differing charges, access and contract terms require careful examination and make comparison difficult without qualified advice, he adds.

As no QROPS fund has yet to reach the five-year holding limit, the Government's rules and procedures on how funds are run until retirement have yet to be tested.

One of the biggest schemes affected by the move is the Panthera ROSIIP fund, an early entrant to the offshore pension market. It has lodged an appeal against the decision, believing that HMRC has misunderstood local Singapore legislation.

"There is a lot of rumour and gossip in the marketplace and the Revenue has an issue with how pension funds are regulated in Singapore," says Bethell Codrington, managing director for Panthera.

He adds that his scheme originally chose to register there because the regulator, the Monetary Authority of Singapore, is regarded as one of the strictest in the world.

Above local legal requirements, the Panthera fund also takes additional steps to maintain its QROPS status. It uses UK-recognised calculations for retirement income payments and avoids investment in taxable property, such as buy to let, which HMRC regards as unsuitable for pension funds.

As part of its appeal, the fund is seeking confirmation that those already in the scheme will be protected under the QROPS rules.

Should the appeal fail, it is already applying for additional registrations in Malaysia and Hong Kong to offer investors continued protection. Until a decision is reached, Panthera says those planning to move their pension abroad should delay their decision, as other countries may well be affected by closer scrutiny by the taxman.

One offshore adviser promoting QROPS has already quit Singapore. Inter-Alliance International, owned by offshore adviser deVere and Partners, shut down its operation in February after receiving a S$56,250 (£21,000) fine for allowing eight of its representatives to advise without valid licences.

The advisers and Inter-Alliance International's chief executive officer are believed to have left the island.

Advisers in the UK remain wary of recommending the remaining recognised QROPS schemes, even those from jurisdictions closer to home.

Last month, the Isle of Man introduced new pension rules that make QROPS transfers extremely attractive. Lump sum payments of 30 per cent on retirement compare well to the mainland's 25 per cent limit. Investments are more flexible too, with residential property allowed.

The big benefit is that no compulsory annuity is required, a perennial bugbear for British pension fund-holders. More than 70 Manx schemes have already been granted qualified recognised status. Malcolm Cuthbert, of UK adviser Killik & Co, says even those wanting to use such schemes for legitimate reasons are now at risk.

"Thousands of people are already in these schemes. We are getting a huge interest, not surprising given the 340,000 or so people who emigrate every year, but we remain suspect of pensions-busting," he says.

He worries, too, that HMRC rules are ill-defined and regulation may well change again in future, affecting yet more investors and more jurisdictions.

"The legislation is not set in stone and it makes me nervous that the situation may well change again. We do not know what could happen to those who have used QROPS for all the right reasons," he warns.

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