Malta QROPS Open Way For 100% Pension Drawdown

Malta Qualifying Recognised Overseas Pension Schemes (QROPS) are jumping on the flexible access bandwagon.

The Malta Financial Services Authority as amended local regulations in favour of QROPS based on the Mediterranean Island following the new flexible access pension rules administered by HM Revenue & Customs (HMRC) in the UK from April 6, 2015.

For retirement savers with a Malta QROPS, this effectively means they can make up to a 100% lump sum withdrawal from their offshore pension and spend the money how they wish.

However, the QROPS member must be at least 55 years old before they can trigger flexible access.

This option is available following a law change in the UK that has removed the restriction on QROPS ring-fencing 70% of any funds transferred in from a British onshore pension to provide a retirement income for the retirement saver.

No restriction on spending

Malta is believed to be the first QROPS jurisdiction to change pension regulations in line with the new UK rules.

Under flexible access rules, retirement savers can take a lump sum which is divided into two parts – the first 25% is tax-free while the remaining 75% is taxed at the retirement savers marginal rate of income tax.

The tax paid will depend on where the QROPS holder is tax resident, not where the pension is based.

HMRC is also introducing rules that require retirement savers opting for flexible access to report any drawdowns to ensure they pay income tax on the 75% balance at the correct marginal rate.

Flexible access rules let people draw as much as they wish from their pension funds as often as they like – and they have no restriction on how the money is spent.

QROPS tax planning

QROPS providers may implement charges for managing the withdrawals.

Although Malta is adopting the rules, the way is open for more than 3,500 QROPS in 45 financial jurisdictions to offer the same flexible access rules to pension pots.

For many expats, the new measure opens the way to shift pensions offshore to a QROPS and then consider taking up residence in a low tax country, such as Dubai, where tax on pensions is 0% to drawdown their funds.

Once the money is accessed, if the QROPS saver moves to a country with higher income tax, no more tax would be due.

Tax-planning when and where to take flexible access is unlikely to involve transferring a QROPS between financial centres.