QROPS transfers fall 29% in year to April, ahead of changes

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The number of UK pensions that were transferred overseas through qualifying recognised overseas pension schemes in the year to 5 April fell by 29%, and the total value of these transfers fell by 20% compared with the same period a year earlier, new data from HM Revenue & Customs reveals.

The period covered by the data for the most part pre-dates major changes to the QROPS regime that experts say will cause such pension transfers to plunge, as it involves a 25% charge on so-called third-country transfers, effective from 9 March this year, unless the individual and their pension remain within the European Economic Area.

Third country transfers are when a someone transfers their UK pension out of the UK to a country other than the one in which they are living – such as Gibraltar or Malta, for example, if they are living in the United Arab Emirates.

As reported here in March, UK Chancellor Phillip Hammond also announced in his Spring Budget that the government would extend,  to ten tax years from five, the period of an individual’s non-UK residence during which UK tax charges can apply to payments out of pension savings, in overseas pension schemes that have had UK tax relief.

In the 12 months to 5 April, there were some 9,700 pensions transferred out of the UK, worth a total value of £1.22bn (see table, below). This is 52% fewer than in the peak year of 2014-2015, when some 20,100 were transferred, and a 30% plunge in the total value of the amount transferred from that peak year, when the value of total transfers hit £1.76bn.

Rachael Griffin, (pictured left), a financial planning expert with Old Mutual Wealth, said the fall in the number of QROPS transfers wasn’t a surprise, noting that “we have known for some time that the QROPS market is maturing”.

“There have been numerous regulatory changes over the years which have made pension transfers to a QROPS more complex, such as the need to have a UK regulated pension specialist approve transfer cases,” she added.

“The new 25% transfer tax charge will undoubtedly show in next year’s numbers, where we expect a further decline. ”

QROPS transfers, though, “are just one part of the jigsaw, and there are other wrappers which advisers will use with their clients to help them meet their long term retirement needs,” Griffin went on.

“With defined benefit pension transfer values still at record highs we expect the pension transfer market to continue to be strong.”

As HMRC noted in comments accompanying the latest statistics, there have been a number of changes to the requirements overseas pension schemes needed to meet in order for them to qualify as a QROP scheme. Such changes were introduced in April, 2012, April 2015 and April 2017, and would have meant some schemes would no longer qualify each time, thus hitting the data for the years these changes took effect.

At the same time, the number of jurisdictions which offer QROPS has recently shrunk, reportedly as a result of HMRC’s efforts to crack down on regimes that have permitted such practices as allowing individuals to access their pension pots before the age of 55.

In March, for example, the last US QROPS vanished from the official list, which is updated online every two weeks. This came just two weeks after the last three Canadian QROP schemes – or “ROPS”, as HMRC has occasionally said it prefers to call them – on the list disappeared. (As recently as April 2015, there had been 13 US QROP schemes on the HMRC list.) In April, nine countries fell off the list: the Czech Republic, Greece, Iceland, Jamaica, Kosovo, Portugal, Sri Lanka, Sweden and Turkey.

Last year, all 19 Italian QROP schemes and 11 French schemes disappeared overnight from the list, and have never returned.

To read and download from HMRC’s website the latest QROPS data, click here.

(1) The numbers of transfers are rounded to the nearest 100
(2) The total value of transfers are rounded to the nearest £10m
(3) There were changes to the requirements that schemes had to meet to qualify as a QROPS in April, 2012,  April, 2015, and April 2017
Source: HM Revenue & Customs