UK pensions changes set to affect British expats

by Ray Clancy on December 13, 2016

British expats who are concerned about their pension investments when the UK leaves the European Union need to be aware of new changes announced by the Government, particularly if they are planning to move back.

UK Chancellor Philip Hammond has confirmed that Qualifying Recognised Overseas Pension Schemes’ (QROPS) tax rules will become more closely aligned with UK pension schemes’ rules.

pensionHe indicated that the eligibility of criteria for the QROPS schemes will become tighter and member payment provisions will be extended from five to 10 years with the changes taking effect in April 2017.

The Chancellor also announced that section 615 schemes, which allow UK companies to set up workplace pensions for their overseas employees, would be closed to new contributions from April next year.

QRPPS, an offshore pension for expats, has boomed in popularity with 2,500 transfers in 2006/2007 to a peak of 20,100 transfers in 2014/2015, falling back to 13,700 in the last financial year. HMRC data shows funds have been put in 1.228 QROPS products in 40 countries.

QROPS pensions were introduced to give British expats and international workers with UK pension rights easier access to their retirement cash after moving to another European State. Retirement savers who do not live in a country offering a QROPS service can move their funds to ‘third party’ pensions in financial centres such as Gibraltar, the Isle of Man and Malta.

The major change announced by the Chancellor is the scrapping of the 70% rule which says that any QROPS outside the European Union must ring fence 70% of any tax relieved funds switched from a UK pension to a QROPS to provide retirement benefits.

Losing the 70% rule means QROPS providers can let any retirement saver aged 55 or over draw down their pension fund as they wish. This includes taking all the cash in one go, drawing a regular income or taking money in lump sums as the saver wishes.

According to Nigel Green, chief executive of the de Vere Group which advises expats on finance matters, it means that QROPS will be taxed in the same way as a UK pension for anyone who then later returns to the UK. Currently only 90% of income from a QROPS is subject to income tax as opposed to 100% in a UK pension scheme.

‘I welcome the Government’s plans as they will help ensure that QROPS are not misused and or mis-sold. QROPS are designed to provide an income in retirement for those permanently living outside the UK or planning to do so, as well as to offer all the many associated financial benefits of having an HMRC recognised pension scheme based in a jurisdiction outside the UK,’ he said.

He also believe it is a good idea to update the QROPS rules. ‘It means that clients are even more protected, making QROPS an even more attractive option. It further highlights that QROPS still keep the same standards or equivalent as UK pensions, that they are fully part of the retirement planning establishment and the deployment of more and more of Government resources demonstrates that the market is well governed,’ he pointed out.

Green also welcomed the tightening on eligibility criteria and said that this will prevent jurisdictions who are failing to meet the stringent requirements demanded by HMRC from bending the rules whilst other jurisdictions, including Malta, the Isle of Man and Gibraltar, which are fully compliant with HMRC rules and standards, will benefit.

‘As the world becomes ever more internationally mobile, international pension planning is, of course, by default, an enormous growth area. As such, I welcome the plans to make the overseas pension transfer market even more robust,’ Green added.

{ 2 comments… read them below or add one }

Matt Brown December 14, 2016 at 8:54 pm

Shall we please stop call them “expats”?

Let’s call them what they are: emigrants

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Sandra Cook December 16, 2016 at 8:32 pm

Ooh wont Mr.Nigel Green be upset, surely this means that it is now more difficult for him to fleece innocent people of their pensions with his cloak and dagger, smoke and mirrors sales techniques. About time the British government woke up to what deVere and many similar companies are doing. We work hard all our lives, save for our old age and along comes Mr. DeVere, telling you how wonderful his scheme is, scribbles a few figures and then pesters, cajoles, threatens until you sign it all away on the dotted line. Please do not fall for this QROPS scam without your eye wide open.

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