Govt to close specialist pension schemes for overseas workers

In its Autumn Statement document, the government said the tax treatment of foreign pensions will "be more closely aligned with the UK’s domestic pension tax regime" by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

The government also announced that it will align the tax treatment of funds transferred between registered pension schemes, and update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

It will also extend the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief from 5 to 10 years.

Nigel Green, founder and chief executive of deVere Group, commented: “Under the government’s latest plans, 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.
 
“In addition, the member payment provisions will extend from five to 10 years, plus the eligibility criteria for a scheme to be listed as a QROPS will be tighter.
 
“I welcome the government’s plans as they will help ensure that QROPS are not misused and/or mis-sold.
 
“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."
 
Green says he expects the changes to trigger a surge in the number of people seeking to transfer their pensions out of the UK before the new plans come into full effect.

John McCreadie, Head of Sales for Momentum Pensions, said: “The decision to close so-called Section 615 schemes to new saving from April next year highlights the need for specialist advice for those employed overseas and underlines the need for more action on transparency by providers. The industry needs to work together to collectively ensure remaining products are completely transparent with no hidden charges. We all need to encourage advisers and their clients to understand the many benefits of selecting a transparent product that can be as geographically mobile as the people who save into them.
 
“The criteria for foreign schemes to qualify as overseas pension schemes for tax reasons will also be updated and the tax treatment of funds transferred between registered pension schemes will also be aligned – providing yet more reasons for the industry to work together to ensure the current suite of overseas pension savings products remain as the cornerstone of pensions planning for geographically mobile workers.”