QROPS & International Pensions Update

Aidan McLoughlinITC Group Managing Director

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About ITC

• Established 1994

• Irish owned – 65 Staff

• €1.6 billion of assets under trusteeship

• 4,000 schemes

• Independent Trustee firm of the Year Award 2014-2018

About ITC International • Maltese pension provider

• Joint venture between ITC & Maltese Financial Services Company

• First company to be approved for both company & personal pensions

• IORP’s approved Pension Master Trust in Malta

• Offers significant possibilities to clients

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International Pension Transfers

QROPS• UK to Malta• UK to Ireland

IORPS• Ireland to Malta

Relevance of Portugal

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Reasons for International Transfers

Consolidation of benefits

Currency exposures

Access to more appropriate tax and benefit structures

Minimising political and economic threats

Facilitate retirement overseas

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Recent Revenue Changes

• Applied from 22nd December 2017• To Non-residents receiving benefits from Irish

ARF• Traditionally:

• Benefit taxed under PAYE in Ireland • Non-resident also liable to tax on benefits in country of

residence• Non-resident could usually apply for refund of Irish tax.

Now• Benefit taxed under PAYE in Ireland.• Non-resident also liable to tax in country of residence.• Refund of Irish tax is now uncertain.

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New Non-resident ARF Rules

• Value in ARF to be divided between capital and income

• Income to be further divided according to source

• Reclaim of tax only possible if allowed under individual tax heads of the relevant Double Tax Agreement.

• Application is still unclear• No refund on insured ARFs• ARFs based on Irish property – no refunds• Equities? Funds? Overseas Property?

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Conclusion

• Existing ARF clients do NOT have the option of transferring overseas now.

• However it may be appropriate to review their investment portfolio in light of the most recent changes.

• For all prospective ARF clients Overseas Transfers Must be considered• To avoid negligence• To ensure full advice

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Transfers from Ireland

• Always allowed under Revenue Rules

• Boosted by the IORPs Directive 2003

• Eurospeak: Institutions of Occupational Retirement Provision.

• Irishspeak: Pension Funds

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• EU 4 Freedoms

• IORPs Directive 2003

• Overseas Transfer Regulations SI 716 of 2003

• Chapters 13 & 24 of Pensions Manual

• O’Sullivan Case

IORPs Transfers

• Transfer to an IORP• ITC has the only IORP approved in Malta for Irish residents

• Member has completed a Bona Fide Declaration• O Sullivan case shows that member can remain in Ireland• Non-resident ARF rules make it essential for those leaving Ireland

Key Revenue Requirements

• Benefits from Age 50

• Lump sum at 30% (for Irish transfers)

• No Fund Cap

• Flexible draw down

• Benefits on First Death

Malta Pensions

• Jack is 40, owns his own business and has a fund worth €2m.

• If Jack waits to 60 his fund could exceed €5m giving EFT of €1.2m.

• Jack can reduce tax to €400k by looking to retire at 50 but must sell shares etc.

Pension Planning: €2m Limit

Pension Planning: €2m Limit

• Jack transfers to Malta. • This triggers BCE immediately but no 40% tax

as value doesn’t exceed €2m• Fund continues to grow to €5m in Malta but

excess is exempt from 40% tax• Can receive lump sum of €1.5m at 60• Can set drawdowns to suit his lifestyle

thereafter.

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• Annie, resident in Northern Ireland has maturing Irish pension benefit worth €300k

• If Annie ARFs in Ireland she will suffer PAYE at source

• She will need to file a tax return and pay tax in UK.

• She will then need to claim tax back using Form IC9 from Irish Revenue.

• December 22 changes – difficulty on tax refunds.

Pension Planning: Non Resident

Pension Planning: Non Resident

• Instead Annie transfers to Malta.

• Income is paid gross in Malta.

• Annie just files and pays UK tax.

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• Nick has received a job offer in California. He has a pension fund worth €500k in Ireland.

• Nick is concerned that his pension pot will be taxed in the US. However he cannot transfer it to the US.

• Nick transfers his pension pot to Malta.• Article 18 of the Malta US treaty

provides that the Income earned by the Malta Fund is only taxed on drawdown.

Pension planning: International Executive

• Jill, aged 60, has a pension fund worth €1m and is retiring to Portugal.

• If Jill ARFs in Ireland she will suffer Irish tax at source.

• Jill transfers to Malta.• Jill receives €300k tax free.• She sets her drawdowns at €30,000 per annum.• Under the Non Habitual Resident regime in

Portugal Jill can receive this tax free for 10 years.• In total Jill has received €600k free of tax.

Pension Planning: Portugal

UK Transfers

UK to Ireland

OR

UK to Malta

• Developed Market• Boosted by Brexit

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What is QROPS?

• Qualifying Recognised Overseas Pension Scheme

• Note HMRC only show ROPS on Register

• Regime operated by HM Revenue & Customs

• Tax free transfer of pension from UK if conditions met

• Foreign scheme must qualify to receive transfer

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What Does ROPS Do?

• Allows tax free transfer of pension out of UK

• Allows UK benefits to merge with other/local benefits

• Provides for local benefit rules to apply• Allows management of £1m life time

allowance• Not limited to pre-retirement benefits

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• UK system similar to Irish Excess Fund Tax.• Since 5 April 2016 Limit is £1 million.• Limit protection is possible if no contributions made since 5 April

2016 at £1.25m.• Further protection possible at £1.5 million if no contributions since 5

April 2014.

Lifetime Limit

ROPS Transfers to Date

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Tax year (6th April to 5th April) Number of transfers (1) Total value of transfers (2)

2006 to 2007 2,500 £120 m

2007 to 2008 5,700 £350 m

2008 to 2009 6,100 £360 m

2009 to 2010 6,700 £460 m

2010 to 2011 12,800 £1,360 m

2011 to 2012 16,400 £1,040 m

2012 to 2013(3) 13,400 £1,000 m

2013 to 2014 11,300 £860 m

2014 to 2015 20,100 £1,760 m

2015 to 2016(3) 13,700 £1,500 m

Scale of ROPS Market

• 120,000 transfers to date• Potential market (2015 EU Commission Statistics):• 3.3 million UK citizens live in EU (outside UK)• 1.2 million EU citizens live in UK• ??? Non citizens e.g. US persons• ??? ROPS available to UK residents who haven’t moved

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Key Rules

• Benefits only available after age 55 Unless due to ill-health or special professions

• Lump Sum limited to 25% of fund

• Member must remain resident in EU for 5 full years after transfer

• 25% Tax charge arises if conditions not adhered to

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2017 Changes • 2017 changes negatively impacted on ROPS transfers to the rest of

the World (i.e. outside EU). Before ITC developed a solution you could only transfer to a country you are resident in Big problem for jurisdictions such as Isle of Man, Guernsey, Jersey, Singapore etc.

• Transfers within EU unaffected – big boost for Malta and Ireland

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ITC Solution for Non-EU residents

• Exemption from transfer tax if transfer is made to an employer sponsored arrangement.

• However almost all schemes in the QROPS market are personal pension schemes – no employer involvement.

• ITFC international pensions have now arranged for the IORPS scheme in Malta to be QROPS approved:

• If an employer contribution is made it is an employer sponsored scheme• This requirement only has to be satisfied at the outset. There is no clawback if

contributions cease subsequently.

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ROPS Market in Ireland

• 411,000 Irish in UK• 255,000 Brits in Ireland• ??? Previous returnees• ??? Other nationalities • 1.5 million in Northern Ireland• Businesses moving for Brexit

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• Mary, age 40, has UK pension worth £950k and has returned to Ireland.

• If she leaves it in UK it quickly exceed lifetime limit of £1million.

QROPS Planning: UK Excess Fund Tax

QROPS Planning: UK Excess Fund Tax

• Mary transfers to BOB in Ireland. Fund grows to €2.5million at age 60.

• UK Excess Fund Tax doesn’t apply.

• Irish Excess Fund Tax doesn’t apply.

• Benefit is not included in Irish threshold calculation.

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• Joe, now aged 59, returned to Ireland age 40.

• His UK benefit is now worth £1.2 million.

• His Irish Benefits are worth €1.9 million.

• His target retirement date is 65.

QROPS Planning: UK Lifetime limit

QROPS Planning: UK Lifetime limit

• He transfers both benefits to Malta.

• No Excess Fund Tax in Ireland as fund is below €2m.

• No Excess Fund Tax in UK because he can claim Lifetime Limit Protection.

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Conclusions

• Overseas transfers have always been part of the pensions landscape

• Boosted by:• IORPs Directive• Greater Migration• Negative Tax Treatment of ARFs• Brexit

• Advisors Cannot Ignore this area:• Potential negligence• Significant Business Opportunity

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Thank YouQuestions?

Email: Aidan.McLoughlin@independent-trustee.com

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