Tom Tracy offers Clarity on New Transfer Rules for UK Pensions



In recent years, we have come to expect attacks on our Pensions Benefits and we assumed more of the same this year with Phillip Hammond’s first budget speech.

We suspected that HIGHER rate tax relief might be in the chancellor’s sights but this was not the case and instead we saw further attacks on British Expats’ rights to take their pensions with them when they move abroad.

First, a quick History lesson.

It was only in 2006 (A-DAY) that UK Pension holders earned the right to take their pensions with them without penalty. This was driven by Europe, and specifically the Freedom of Movement of Capital, People and Pensions.

Since A-Day there have been billions of pounds of UK pensions moved abroad as expats, concerned with currency risks, high pensions tax, passing benefits to their family, UK pensions deficits etc., took the decision to take their pension with them to more pension friendly destinations.

Since then there have been numerous attacks by the UK Government to try and stem the flow outwards.

To give an example, the biggest concentrations of UK Expats are in Australia, and in the South of Europe (Spain/France particularly).

In 2015 nearly all Australian QROPS were delisted by HMRC as they had the option to take benefits earlier than age 55 on grounds of financial hardship – UK pensions can only be accessed prior to age 55 in cases of serious ill-health, and this technicality was all that HMRC needed. This option was removed, stopping over a million UK expats from taking their pensions with them down under.

In Europe however, things are a bit more complicated. The UK is governed by EU law on various areas including Pensions – in Europe there were pension schemes set up in Malta and Gibraltar to facilitate such transfers not only for Brits in the EU but Brits anywhere on the planet who could now move their pensions to save tax, take control and protect themselves from new UK legislation designed to attack their retirement fund.

This culminated in this year’s new tax designed to make you leave your pension in the UK.

This new 25% Tax on transferring your UK pension abroad will apply unless certain conditions are met which include the following:

• Both the member and the QROPS are in the same country after the transfer

• The QROPS is based in the EEA and the member is resident in another EEA country after the transfer – the EEA consists of all EU countries plus Iceland, Liechtenstein and Norway. (Gibraltar is included as part of the UK)

Firstly, for those of you with whom we have already worked successfully to carry out a pension transfer (and did so before March 9th 2017) then this tax charge DOES NOT affect you. This news simply further validates the decision that you made.

To those of you who haven’t yet transferred your pension, there are still several options.

So what are these options?

For EEA residents, QROPS remains one of the options available but we expect from April 2019 once the UK has left the EU that this option will no longer be open.

(We assume that after the UK untangles itself from Europe then HMRC will apply the same rules to the EEA as applies to the rest of the World).

The UK Government has been very clear – it will continue its effort to increase levels of revenue through further pension taxation.

QROPS may still be appropriate for those that live in certain locations where a local QROPS scheme is available, for instance in Hong Kong or the EEA.

For those of you living in Australia, from age 55 there is the option of a Self-Managed Super Fund (as long as it meets the updated HMRC requirements announced in March 2017) and in the meantime, there is also the option of using a SIPP.

If you are an Expat in Australia below age 55 or North America or somewhere else with no local QROPS then there are still options.

Until you are 55 in Australia or if you are living in North America or elsewhere on the planet then an International SIPP may be appropriate.

The Benefits of a SIPP are:

• Take Control of Your Pensions
• Full access from age 55
• Not Subject to UK Pensions Transfer Charge
• International platform so you can manage your currency risks and investments
• Protect yourself from the pension deficits of a Final Salary Scheme
• Crystallise your pension at 55 to help minimise any Lifetime Allowance Charge implications
• Pass on your full Final Salary Pension to your beneficiaries
• Transfer to a QROPS if you move to an appropriate jurisdiction

Your pension will still be under the UK’s jurisdiction but you will have control and from age 55 when freedoms apply we can help you take it abroad then.

Given the myriad of options if you are an expat and own UK pensions, please contact us to set up a review with one of our Pension Specialists.

S&P and the FCA support our approach to Investment Management 

Meanwhile, the FT recently reported that nine out of ten actively managed funds focused on UK equities underperformed the stock market last year – adding fuel to the argument that traditional asset managers are failing their clients.

As we discussed last month, it is a view shared by the FCA in the UK and by S&P whose own research revealed that 87.2 per cent of active funds had failed to hit their benchmark over the last year.

Actively managed UK equity funds on average delivered a return of 11.2 per cent last year, just under 6 percentage points lower than the 17.1 per cent return enjoyed by the UK equity index calculated by S&P.

In the same period our Next Generation Morningstar Growth Fund delivered 28.5% return.

If you haven’t made the move to passive strategies move now-we have already created nearly £ 10 million profits for our clients over the last 12 months.


The Author

Tom Tracy

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