Delisted Pension Schemes: The Guernsey Dilemma

On the 29th September 2015, the States of Guernsey approved amendments to their income tax legislation to permit delisted qualifying recognised overseas pension schemes to provide retirement benefits in accordance with the provisions of the laws of the place in which the transferor scheme is situated.

This created the statutory framework to allow such delisted pension schemes to provide retirement benefits in accordance with the UK flexi-access drawdown pension rules.

It is up to individual trustees to decide whether they will permit flexi-access drawdown pension payments from their individual schemes, but where the decision is taken to permit flexi-access, it will be necessary for individual scheme rules to be amended to remove the UK requirement applying to unregulated overseas pension schemes which states that at least 70% of a member’s UK tax relieved funds will be used to provide a pension income for life from minimum pension age 55.

Trustees who decide not to permit flexi-access drawdown mean the pension plan will continue to provide a pension income for life, generally on a capped drawdown basis.

The Dilemma

It is understood that at present there is circa £2bn invested in delisted Guernsey schemes, with many members content to remain in these plans so long as they continue to give protection from UK inheritance tax charges.

The inheritance tax exceptions conferred upon the plans rely on the delisted schemes continuing to satisfy certain UK tax regulations which apply to foreign source pension schemes.

If the inheritance tax exemptions cease to apply to a delisted scheme the property comprising that pension trust will become “relevant property”, resulting in exposure to various charges, including inheritance tax.

Options

A subsequent charge to inheritance tax can be avoided by transferring pension funds from the delisted Guernsey schemes to a qualifying recognised overseas pension scheme in another jurisdiction. The transfer of pension rights will not be subject to testing against the Lifetime Allowance and, therefore, will not give rise to a UK income tax charge.

Suitable jurisdictions accepting third country pension transfers include the Isle of Man, Gibraltar and Malta.

Specific considerations and profiles for these jurisdictions are available on request.

It is worth noting that unlike either the Isle of Man or Gibraltar, qualifying recognised overseas pension schemes established in Malta can provide to all members both full flexi-access drawdown pension benefits as well as exemption from inheritance tax charges.

The Facts

Members of delisted Guernsey schemes have the opportunity to make a tax free transfer of rights to the Dominion Malta Retirement Plan 2010 thereby ensuring future inheritance tax protection is preserved. This is particularly important for clients who wish to embark on estate planning strategies in respect of their pension funds

Dominion has specialised expertise in structuring pension benefit distribution models to meet the requirements of individual members, which includes succession planning should the member die while there are remaining assets held within the Plan.