Transfers to overseas pension schemes

In yesterday’s Spring Budget, the Government announced that a 25% tax charge on transfers to qualifying recognised overseas pension schemes (“QROPS”) will be introduced for transfers requested on or after 9 March 2017. The charge will not apply in certain situations, including where:

  • the individual is resident in the same country in which the QROPS is established;
  • the individual is resident in a country in the European Economic Area (“EEA”) and the QROPS is established in another EEA country;
  • the QROPS is an occupational pension scheme and the individual is employed by one of the scheme’s sponsoring employers;
  • the QROPS is an overseas public service pension scheme and the member is employed by one of the scheme’s participating employers; or
  • the QROPS is a pension scheme established to provide past service benefits by one of certain international organisations and the member is employed by that organisation.

The charge will not apply to transfers which were requested before 9 March, but are executed after that date (unless the transfer is not made to the same QROPS in respect of which the pre-9 March transfer request was made). For these purposes, a transfer has been requested where the member has made a substantive request in relation to which the scheme administrator is required to take action.

Where the transferring scheme is a registered pension scheme, the scheme administrators and the member will be jointly and severally liable to pay the 25% transfer charge. Scheme administrators should deduct the tax due from the member’s funds before making the transfer, and should report and account for the tax in the usual way using the scheme’s Accounting for Tax return.

HMRC has published draft guidance on the transfer charge.

Money purchase annual allowance

The Government also confirmed that the proposed reduction of the money purchase annual allowance from £10,000 to £4,000 will go ahead with effect from 6 April 2017.

Action to be taken by schemes

Schemes should ensure that they update their overseas scheme transfer procedures and associated member communications as a matter of urgency to reflect the introduction of the new transfer charge. For example, schemes will now need to obtain additional information from the member to enable them to determine whether the transfer charge will apply. Schemes will also be subject to additional provision of information obligations to the member, the manager of the QROPS and HMRC.

If they have not already notified members of the reduction to the money purchase annual allowance, schemes offering money purchase or cash balance benefits should consider notifying members holding such benefits of the reduction now.