UK Pension Transfers – March 2017 changes

31st March 2017

25% charge imposed by UK HMRC

With a surprise 25% charge introduced by the UK government on transfers to foreign pensions, it is vital that your adviser has the expertise to give you the right advice, knows all the rules and importantly, how they could affect you specifically.

If you haven’t been keeping up with UK Budget announcements, you will have missed the UK government’s decision in the Spring Budget to impose a 25% charge on UK pension transfers to foreign pension schemes.

Chancellor Philip Hammond and the UK government, have become increasingly concerned about the use of QROPS for the past few years and this is a major move to reduce their use.

The 25% charge will affect those requesting an overseas pension transfer on or after 9 March 2017.  It is targeted at those people who are seeking to reduce the tax payable by moving their pension to other jurisdictions, so this charge is a way to try to tackle this abuse of using foreign pension schemes.

QROPS was designed to help make it easier for individuals leaving the UK to retire to another country and take their pension with them.  However, this has increasingly been manipulated by those advisory companies wishing to profit from organising transfers and to those people looking to cut their tax bills.

Many UK pension holders have arranged a transfer of their pension to another jurisdiction, even when they continue to reside in the UK.

There are exceptions however where transfers will continue to be allowed free of the 25% charge. This is where a person has a genuine need to transfer their pension, including when a person and their pension are both located with the European Economic Area.  Also, where the individual and the QROPS is in the same country also qualifies for this exemption.  Therefore, anyone moving to New Zealand and wishing to transfer their UK pension here, can continue to do so (with some criteria attaching).

It must be noted that the 25% charge can still be applied however, if a person moves to another country within 5 years of transferring their pension.  For example, if an individual were to move to New Zealand and transfer their UK pension to a New Zealand QROPS, then 3 years later decided to move to Australia, the 25% charge will apply.  They need to be sure that they are making their home in NZ for at least 5 years when they transfer their pension to avoid this charge.

The rules around UK pension transfers continue to be complex and getting the right advice from an experienced and qualified financial adviser with this expertise is crucial.  Understanding both the UK and NZ side of things is vital when making the decision to consider to move a pension as there are many facets to consider – death benefits, tax implications, guarantees, penalties and investment choices.

By Charlene Overell – G3 Financial Freedom Ltd  31.03.17