Malta first to enable overseas pension freedom

Malta has become the only jurisdiction to offer full UK-style pension freedoms for British ex-pat savers in qualifying registered overseas schemes, after a deal forged last week between the country’s financial regulator, reports the FT Adviser.

One provider, TMF Group, has announced it has reached agreement with the Malta Financial Services Authority to simply amend trust deeds and rules in order to offer pension freedoms with immediate effect. The deal would open the door for others in the same position in the country.

It had previously been thought that schemes would have to go through a ‘transitional process’ under new Maltese pension rules in a process that was expected to take until at least the summer.

For schemes that apply for the ability to offer flexible drawdown – and have the amendments signed off the by the MFSA – they will be considered to have been able to operate in such a manner from 6 April.

Schemes applying for the right to offer freedoms will have to prove their rules mirror those in the UK to ensure tax-relieved pensions are not compromised, meaning they cannot pay out before age 55 and restrict lump sums to 25 per cent.

This could be a problem for some schemes, as local laws allow pensions to be accessed from age 50.

Bethell Codrington, global head for international pensions at TMF Group, told FTAdviser: “As far as I’m aware Malta is the only place offering the pension freedoms.

“Gibraltar and Isle of Man are not at this time offering flexible drawdown and jurisdictions outside the European Union, as per ‘statutory instrument 673’ are barred from offering flexible freedoms at the moment, subject to review at some point.”

James McLeod, head of pensions at AES International, said: “If this is the case, then it is good news for Maltese schemes that the authorities there have acted swiftly and made it so providers can adjust their trust deeds in order to take advantage of the new pension flexibility rules.

“It should be noted though, that schemes will need to register under the new legislation and, as far as we understand, the regulator is keen for them to become registered at the same time, so there could [still] be some delay.

“The question also remains of what happens to those in Maltese schemes who are age 50 or older, but younger than 55, and who have already begun drawing benefits? Do the schemes simply stop paying them for some months – or even years – until they reach 55?”

Mr McLeod added that the situation for other jurisdictions remains “less than perfect” due to the UK government’s decision to retain the so-called 70 per cent rule.

Last month, it was announced that many Qrops will be prevented from offering pension freedoms to members on 6 April, following a government U-turn over a rule that requires 70 per cent of a fund to be ringfenced to provide an “income for life”, under ‘statutory instrument 673’.

For schemes based in one of the 28 European Union member states, to whom the rule does not apply, this new development will not prevent them offering free access to funds provided they meet certain reporting requirements. Most, however, have still not put local legislation in place.

HMRC had initially consulted last year on plans to extend full freedoms to qualifying recognised overseas pension schemes, meaning savers would be able to access their pensions in line with the rules in the UK without the scheme losing its Qrops status.

Mr Codrington added that HM Revenue and Customs are concerned about tax compliance on withdrawals from Qrops as well as UK pensions, and they do not want to see pension funds being cashed in for little or no tax.

“Whilst the revenue would like to see tax paid here in the UK, in Malta they can be reasonably confident that the beneficiary will be pay tax somewhere.

“Pension income is taxed at marginal rates of income tax at source in Malta unless the member can claim an exemption under a suitable double tax treaty.”