RPSM13101080 - Technical Pages: International: Migrant member relief: Overseas pension scheme: –Tax-recognition conditions a scheme has to meet to be an overseas pension scheme

Tax-recognition conditions that a scheme has to meet to be an overseas pension scheme

[s150(7) and The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006.- SI 2006/206]

Under The Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI 2006/206), one of the requirements that a scheme must normally satisfy to be an overseas pension scheme is that it is “recognised for tax purposes” under the tax legislation of the country or territory in which it is established. It must meet the primary conditions and also meet one of conditions A and B.

Primary condition 1

The scheme must be open to persons resident in the country or territory in which it is established.

Primary condition 2

The scheme is established in a country or territory where there is a system of taxation of personal income under which tax relief is available in respect of pensions and:

1. tax relief is not available to the member on contributions made to the scheme by that individual or, if the individual is an employee, by their employer, in respect of earnings to which benefits under the scheme relate, or
   
   
2. the scheme is liable to taxation on its income and gains, and is a complying superannuation plan as defined in section 995 – 1 (definitions) of the Income Tax Assessment Act 1997 of Australia, or
   
   
3. all or most of the benefits paid by the scheme to members who are not in serious ill- health are subject to taxation.

For the purposes of this condition tax relief includes the grant of an exemption from tax. Any serious ill-health provision under the pension tax regime of the country or territory in which it is established must reflect the provision applying in respect of a member of a registered pension scheme under paragraph 4(1)(a) of schedule 29. If there is provision for a serious ill- health exception it does not have to apply the same conditions as are set out in RPSM08100080, but it must be fundamentally similar in order for the requirement at c. to be met.

Condition A

The overseas pension scheme is approved or recognised by, or registered with, the relevant taxation authorities as a pension scheme in the country or territory in which it is established.

Condition B

If there is no system for the approval, recognition, or registration of the overseas pension scheme as a pension scheme in that country or territory, the scheme must be resident there and its rules must provide that:

1. at least 70% of a member’s UK tax-relieved scheme funds will be designated by the scheme manager for the purpose of providing the member with an income for life, and
   
   
2. the pension benefits payable to the member (and any associated lump sum) must be payable no earlier than they would be if pension rule 1 in section 165 applied.

UK tax-relieved scheme funds means the sum of the member's UK tax-relieved fund and their relevant transfer fund. Those terms are explained in RPSM13102150 and in RPSM13102170.

Pension rule 1 in section 165 provides that no payment of pension may be made before the day on which the member reaches normal minimum pension age, unless the ill-health condition was met immediately before the member became entitled to a pension under the scheme. Guidance on the normal minimum pension age is provided at RPSM08100010 to RPSM08100030, and there is guidance on the ill-health condition at RPSM08100070.

Condition B ensures that a scheme that meets the primary conditions can still be an overseas pension scheme if there is no formal system of tax approval of pension schemes in the country in which it is established.