Shaun Summers is corporate sales development manager at Zurich International Life In his speech, S...
Shaun Summers is corporate sales development manager at Zurich International Life
In his speech, Shaun Summers considered the opportunities for offshore retirement planning in light of the UK pensions simplification and recent EU directives.
Offshore pension solutions have traditionally filled the gaps between different jurisdictions by using their independent status to meet needs that would otherwise be incompatible. Offshore corresponding approval and Section 615 schemes are examples of this in action, according to Summers. The fact that this is done with a tax incentive means that the larger, onshore jurisdictions look unfavourably on them. It is perhaps surprising, therefore, that the revenue has not used pensions simplification to try to attack offshore pension business. Or has it?
Summers' speech looked at corporate retirement benefit schemes from an offshore perspective. He focused on the UK distributed offshore market and looked at the issues facing the pension business.
Regulatory changes within Europe and beyond have had an impact on insurance business. Last year in the UK, the Inland Revenue introduced the Pre-Owned Asset Tax, which was aimed at IHT planning and disclosure in tax avoidance schemes that has seen ordinary insurance policies come under scrutiny. Corporate-owned capital redemption bonds have also come under fire because it was felt they were being used to create artificial tax losses.
In Europe, the EU Savings Directive has come about because it was easy for someone who lived one one member country to invest in another state and not be taxed on the interest.
Pensions simplification takes place in the UK next year. This Government initiative aims to apply one set of criteria for the taxation of pension products. This will also be written with the EU Occupational Directive in mind to enable pan-European pension business to be written.
Summers said: "All these issues take time to investigate and understand, and we have no choice but to keep up and accept that increasing change will become part of the landscape in the future."
He then examined what offshore pension products are on offer to clients now. Traditionally offshore insurers have filled the gaps between different jurisdictions by using their independent status to meet the needs that would otherwise not be compatible with domestic legislation.
This can be done firstly by offering a zero rate fund to multi-jurisdictional clients providing a wide range of funds and other features. Or, secondly, by complying with onshore jurisdiction tax rules to provide a tax-relieved, recognised pension scheme. They are about providing pension schemes for non-UK domiciled employees in the UK and UK-domiciled employees working overseas that are taxed-relieved in the country.
Onshore jurisdictions such as the UK tend to suspect that avoidance is involved for UK domiciled employees who are taxed-relieved in the UK but who have an offshore pension policy. Summers warned that the Revenue has used pension simplification to attack offshore pensions business.
He said: "Pension simplification will prevent this business corresponding approval from being written. Prior to A-day, correspondingly approved schemes have not been subject to overall limit on contributions if you ignore salary references. After A-day, these rules will apply on life time limit and maximum contributions.
"Secondly, while pre-A-day contributions were fully deductible, they will now be significantly reduced because of these limits. Thirdly, benefit flexibility is now uncertain as the UK wants to bring corresponding overseas approved schemes in line with the new UK scheme."
According to Summers, tax-relieved business makes such schemes no longer viable. However, standard tax-neutral business is still okay.
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