The Guernsey Retirement Annuity Trust Scheme (RATS) has proven a great success as an aide to occupational and individual retirement planning, so it was inevitable that a Jersey RATS would follow. Offering appealing flexibility, cost effective savings solutions and a greater choice of investment options, RATS is a standard pension plan with some attractive additional benefits. However, Guernsey RATS are not quite the same beast as Jersey RATS – there are some key differences to note.
The first difference with the Jersey scheme is the name. While the Jersey scheme started out as a Retirement Annuity Trust Scheme, it is now known as a Retirement Trust Scheme (RTS). The RTS is also a newer scheme, introduced in 2008, almost two decades after the Guernsey RATS.
30th June 2017 saw the implementation of the Pension Licensees (Conduct of Business) & Domestic and International Pension Scheme and Gratuity Scheme Rules 2017 (the “Rules”) in Guernsey. These were drafted by the Guernsey Financial Services Commission (GFSC), with an amended and updated version issued in August. For Guernsey pension providers the legislation offers a boost in creditability whereas Jersey has yet to establish such regs.
Both the Guernsey and Jersey schemes offer the same benefits when it comes to tax efficiency – tax relief is available on contributions of up to the lower of £50,000 a year or 25% of net relevant earnings.
Guernsey RATS offer much more flexibility. Quoted investments, cash, private company shares, commercial and residential property may all be investment options (under bespoke plans). Esoteric investment may also be possible such as fine wines, classic cars and works of art, although these may need approval from the Guernsey Income Tax office. Jersey RTS offer a restricted range of investments and do not allow residential property, private company shares or esoteric investments.
Under the old RATS Rules 2015, member directed investment was allowed and encouraged. This was to match the UK rules which also allow members’ to direct trustees as to how they wish to invest their pension funds. Under the RTS legislation an advisor must be appointed.
The Guernsey RATS has just that bit more flexibility than its Jersey cousin, providing more opportunities in terms of what you can do with the money that you save. Principally, this comes in the form of the opportunity to draw down a loan up to 30% of the value of the RATS. The loan has to bear interest at a commercial rate, be secured and repaid prior to drawing benefits. Currently, this isn’t an option for those investing in a Jersey RTS.
Guernsey RATS are available to Guernsey residents and established under local Guernsey laws. The RTS is available to Jersey individuals. It has been set up under Jersey law and is also a trust arrangement that gives local residents a flexible way to save for retirement and receive retirement income. Both RATS and RTS may accept non-resident members but no tax relief is given on contributions.
Guernsey RATS come in two main forms: bespoke and multi-member, unlike the Jersey RTS, which is a single structure. This provides an additional level of flexibility in Guernsey for those with larger pension funds.
Other key points about the Guernsey RATS and Jersey RTS
• Despite the different name, both the RATS and RTS are a simple pension planning vehicle just like any other.
• Both may accept transfers from any previous pension scheme, an existing pension scheme, as well as contributions from an individual, an employer or a combination of the two.
• The RATS and RTS funds can be accessed at any time after the age of 50 and there are several options for individuals looking to access pension savings. These include withdrawing a 30% tax free lump sum or a series of smaller tax free lump sums.
• There is no requirement to buy an annuity with the pension from either island once you reach pension age. Also you can start to withdraw money from your pension from the age of 50 onwards – such as the tax-free lump sum – and you don’t have to be retired to do it.
• Unlike a traditional pension, any funds that remain in the RATS or RTS on death can be distributed in accordance with your own wishes.
For residents of Guernsey there are some clear benefits to opting for a Guernsey RATS, as opposed to remaining within a traditional insurance based pension. Flexibility of investment, withdrawals and distribution all make this a very attractive option.