As the economic climate stalls national pension reform, UK expatriates can now adminster funds from the locale. Stephanie Testaferrata reports
Ironically, while the local market is not likely to have access to occupational or private pensions schemes anytime in the near future, wealthy British expatriates can now have their pensions administered in Malta following an agreement with HM Revenue & Customs, the UK tax authority.
Under this deal, which was finalised in December 2009, UK pension schemes can be established in Malta and regulated by the Malta Financial Services Authority (MFSA). They are considered on a case-by-case basis for qualifying as recognised overseas pension schemes (QROPS) under UK Law.
A QROPS is a pension scheme set up and regulated outside the UK, recognised by HMRC as broadly equivalent to a UK registered pension scheme. It allows people who are no longer resident in the UK to transfer pension benefits accumulated in a UK-recognised pension scheme to one outside the UK.
According to the MFSA, this can give employers, and their employees, more tax flexibility on these benefits, provided certain requirements are met. The same advantages apply to individuals no longer resident in the UK who receive benefits from their personal pension schemes.
In March 2010, the MFSA issued the first registrations for retirement schemes under the Special Funds (Regulation) Act. These include the Melita International Retirement Scheme, which will be administered by Custom House Global Fund Services, the Dominion Malta Retirement Plan, to be administered by the Dominian Fiduciary Service (Malta) and the MCT Malta Private Retirement Scheme, which will be administered by MC Trustees (Malta) Limited. The administrators have submitted notifications to HM Revenue & Customs to ensure the schemes fulfil the QROPS requirements.
In order to establish a QROPS in Malta, a retirement scheme must firstly be created in accordance with the Special Funds (Regulation) Act 2002, which regulates retirement schemes in Malta. According to the Valetta based law firm Ganado & Associates - which has been key to bringing QROPS to Malta - this can be done by way of either a trust or a contract to the satisfaction of the MFSA. If the scheme is established by way of a trust - as is usually the case- a trustee will need to be appointed.
"Trusteeship is a licensable activity in Malta and the trustee of a retirement scheme will either need to obtain a full trustee licence, or a licence which would limit the allowable activity of the trustee to the administration of the retirement scheme," notes the firm.
"UK regulation requires that a retirement schemes needs to be regulated in the country where it is established by an appropriate body that will ensure that the scheme is administered soundly in order to protect the interests of its members. The legislation also requires that the scheme is recognised for tax purposes in the country where it is established."
While the local financial services community will gain some experience in the administration of QROPS, these types of funds are by no means a yardstick by which local expertise can be measured. "You have to understand a QROPS is a very specialised type of pension aimed at wealthy expats and not at the local market. Whilst there are some similarities in structure and administrative requirements they tend to be only for a small number of people so it is a lot simpler than dealing with the administration of large pension schemes for employees," says Stuart Fairbairn of Middlesea Insurance in Valetta.
Nor will there be the option, when second and third-pillar reforms are introduced, to incorporate local pension assets into an already established QROPS scheme. "A QROPS will be established to provide pension benefits for a particular employer. Membership will be limited to the employees of that company, non-employees will not be eligible," Fairbairn adds.