For Gibraltar 2001 read the UK circa 1984. This may seem an unkind statement in the light of the reputation of the dependent territory for new financial products, but the pension industry in currently working with government to bring things up-to-date.
First pillar provision is represented by a flat state pension. National Insurance contributions are, unusually, payable at a standard flat rate rather than as a percentage of salary, for each week of employment. These currently stand at £42.34 (exx)of which £18.87 is paid by the insured person, while the employer pays £23.47. Self-employed persons pay £21.80 per week. There are other rates relating to pensioners, voluntary contributors and juveniles, and to some forms of employment for which reduced rates of contributions are payable.
The subsequent pensions are payable under the Social Security (Closed Long-Term Benefits and Scheme) Ordinance and the Social Security (Open Long-Term Benefits Scheme) Ordinance. These benefits are payable to men over 65 years of age and women over 60 years of age who have paid not less than 156 contributions and have a yearly average of at least 50 contributions. The standard rate of pension is £47.80 per week with increases of £6.90 per week for each child and £23.90 per week for a dependant wife. These benefits are payable at a reduced rate if the yearly average of contributions paid or credited is more than 13 but less than 50.
There is no government-sponsored earnings-related scheme, but private pensions are not uncommon. More importantly, they are becoming more popular, and consequently there are a number of issues which have to be addressed.
At the beginning of the 1980s the Gibraltar government, through the Income Tax Office, published a series of guidance notes on pensions. It is under these rules that the Income Tax Commission (ITC) approves pension schemes. Those rules have not been revised since then, other than that in 1987 there was a major change with new rulings on commutation, adopted from the UK rules. In effect other changes in the UK since 1984 have not taken place in Gibraltar.
There has been no Pensions Act, and so there is no legal framework, no pensions office, and consequently no regulator. The Financial Services Commission does not then regulate pensions per se, but it does regulate the pension sellers. The issue here is that the ITC is the closest thing to a regulator in that it polices pension schemes for the purposes of tax relief and tax collection.
Consequently there is a huge gap in the system, and a review is currently underway. Taking part in this are the government, the Gibraltar Insurance Intermediaries Association (GIIA) and other interested parties, all of whom are in favour of the introduction of a pensions regulator.
Richard Bell-Young, chief executive of Savignon Financial Services, vice–chairman of the GIIA and its pensions spokesman says: “There is no question but that all parties encourage the appointment of a regulator, and I am certain that will come.”
All the pension schemes in Gibraltar are either insured schemes, which make up the majority, or self-administered schemes similar to those in the UK. Predominently the insured schemes are written as a pure endowment with profit investment structure, albeit that the final salary schemes are smoothed deposit account models.
“The rules, which govern pensions at the moment, are archaic,” says Bell-Young, who also sits on the pensions committee set up by the Gibraltar government. “But we are trying to bring them up-to-date. A report written by the GIIA was forwarded to Chief Minister last September recommending a review to bring regulations in line with the UK, and that is currently being studied by the pensions committee. Although there is no timetable for legislation, the government is on record as stating that reform is vital. There is across the board support from the government to the unions and employers groups. So far as the GIIA is concerned the main strands of these changes are represented by the annuity question, that is the restrictions imposed on schemes which have to buy annuities when they are expensive, the need for a regulator and the introduction of a Pensions Act. “This could take one year it could take three, but it is very much an orchestrated and concerted effort by all parties pertinent to pensions in Gibraltar, and I am confident the aims will be achieved.”says Bell-Young
Nevertheless, it should be remembered that Gibraltar has a special and unusual market. Many of the schemes are small, and consequently expensive to run. One of the major challenges facing the industry is deciding which will be the best models for occupational plans.
Given the nature of the Gibraltar economy, and its traditional tax-advantaded position, the question of international or pan-European pensions will also inevitably be considered.
Robin Ellison of law firm Eversheds in London, who has been in discussions with the Gibraltar authorities, says it is inevitable that the government will be considering the possibility of being the home of pan-European pensions. “Dublin and Luxembourg have already indicated their willingness to host such pension schemes, and clearly although competing jurisdictions could not compete in terms of tax benefits, they could offer simplified administration, and reduced costs. The Gibraltar authorities are obviously going to be thinking of being involved in such pensions. It is a very convenient place to do business for a number of reasons. They do currently boast good administration systems over a number of areas and could, if they wanted to, design a new regulatory structure starting from scratch.”
Such schemes are very much in the future, says Bell-Young. “I think the local pension schemes will take priority in terms of a new regulatory body, as the pan-European schemes are influenced by other factors externally, throughout the EU. I would see the international plans as long-term, and believe that the government will see getting our pensions house sorted out in Gibraltar as a priority. Their focus is on the local market at the moment.”
As the largest onshore domestic specialists Savignon boast some 90 occupational schemes which they post box administrate, as well as around 350 personal pension plans, and in excess of 125 transfer plans for those who have left occupational pension schemes.
Despite their relative size in the territory, Savignon have faced a particular problem of late. “In our case our main provider of products, Clerical Medical Investment Group in the UK pulled out of Gibraltar in March last year so far as new pension schemes are concerned. This was nothing to do with Gibraltar, but rather part of their own overall strategy. After that we found it very difficult to find an overseas provider to consider Gibraltar for pension schemes, mainly because of the size of the plans, and the proportionately high costs. This led us to write our own pension scheme, which we launched in February of this year, tailored specifically to the needs of the domestic market.
“We feel that this particular scheme will develop as discussions with government progress, and who knows it could well be adapted for international pensions. The people involved in our self invested plan are Norwich Union International in Dublin who are the investors, and a panel of accountants including KPMG, PWC, Grant Thornton and Deloitte Touche via their Gibraltar offices, acting as administrators.”
It would appear there is a new determination about in Gibraltar, which will surely lead to significant reforms on both the domestic and international fronts. Broad agreement from all interested parties suggests local changes should go through smoothly, and Gibraltar looks certain to enter the competition which pan-European pensions are bound to prompt, hoping to provide a vehicle with significant advantages over its rivals.