New tax threat to those moving a pension abroad

by Alexander Beard, on Jul 8, 2015 9:13:04 AM

The new pension freedoms, which came into force on April 6th 2015, have highlighted a potential problem for UK nationals looking to emigrate abroad and take their pensions with them.

Whilst the new pension freedoms create greater flexibility for those accessing their pensions, they do not allow access to pensions before the age of 55. This has caused a clash with some current Qualifying Recognised Overseas Pension Schemes (QROPS), which do allow access before 55 in certain circumstances.

In the UK, these early access circumstances are tightly controlled to include only serious ill-health. Schemes that encourage early pension access for any other reason are often scams and can cost pensioners vast sums.

In other territories however, particularly New Zealand and Australia, pension schemes can allow early access to savings in a wider range of circumstances, such as when the account holder is suffering financial hardship.

The problem for UK expats arises from the fact that transferring to schemes with this type of clause could trigger a 55% taxation charge from HMRC. The onus is on the saver to investigate the scheme they wish to transfer to, which unfortunately means that individuals could lose vast amounts of their pension to the tax man. As ever in this sort of complex financial situation, it is highly recommended that you speak to an independent financial adviser, with the authority to advise in your home territory and the territory you are moving to.

In the meantime, HMRC have moved to address the situation. Contact has been made with the schemes in question to request a change in their terms, if they are to remain as nominated QROPS. Whether the schemes are willing to change however, given their terms benefit clients in the schemes’ home nations, must be fairly doubtful. This means that, unless another solution is found, those moving abroad will have to be doubly careful on their choice of scheme at the point they transfer their hard-earned savings.

If you feel that you could benefit from some guidance regarding the wider implications of the pension changes, feel free to contact us with any questions or queries here.