Transfers halted amid talks on overseas pension penalties

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Transfers halted amid talks on overseas pension penalties

Transfers to Australian pension schemes on behalf of emigrating UK savers are being halted amid ongoing wrangling over new rules to prevent abuse of the pension freedoms, which could see swaths of overseas pensions lose their rights to preserve UK tax relief.

Yesterday (19 May) Pension Transfer Specialists, a company based in Australia that specialises in transfers from UK pension schemes, circulated an email suggesting that HMRC should back down, after it emerged that new rules could leave savers facing hefty penalty charges.

The email stated a number of Australian superannuation schemes are currently liasing with the Financial Services Council in Australia and other Australian schemes registered with HMRC for UK tax purposes, to seek an exemption.

The email stated: “We have been advised that Australian Superfunds [one major Australian scheme] are taking a collaborative approach with HMRC to seek comfort that HMRC will not impose this tax on any transfers.

“As a further precautionary measure, we will contact all UK schemes currently in the process of transferring funds to withhold until we have confirmed that the Australian Superfund remains a Qrops.”

The communication comes in the wake of a letter sent to overseas pension schemes last month backdating regulations to 6 April, when pension freedoms came into force, seeking schemes to confirm compliance with age restrictions on pension access.

Schemes must not allow access to pension savings before the age of 55 or they face losing their registered status. Transfers to a scheme that is no longer registered, even those which happened while registration was in place, could face 55 per cent ‘unauthorised’ charges.

On top of this, the UK scheme can be fined a further 15 per cent of the value transferred.

The letter was a reminder of the new rules which came about as the statutory instrument published in March this year, which stated that schemes need to report any change of status within 30 days of the inception of the new rules from 5 April.

They are thought to particularly affect schemes in Australia and New Zealand, where early access to pensions is allowed for reasons of financial hardship or, for Kiwisaver schemes in New Zealand, after three years to help fund a house purchase.

According to Geraint Davies, managing director at Montfort International, Australian schemes currently need to de-list, amend and reapply to be considered a Qrops.

“HMRC will have a zero tolerance policy on this, because if they give in they will have to give in to the whole of the UK. A lot of people in Australian Qrops will be absolutely seething about this.”

Mr Davies added that it was his understanding that if the scheme decides to compensate a client, compensation of loss is taxable in Australia, and members will have to pay a further marginal tax rate - 45 per cent - on top of the 55 per cent already paid.

“Some schemes will fudge it and that’s asking for trouble - UK schemes need to take advice over process and treat with healthy skepticism any request for an overseas transfer.”

Mr Davies also said that the responsibility had been further placed on the UK schemes in question, as he said that it was “hitting at UK schemes for due diligence”, adding that “UK advisers who give advice in this area better have their wits about them.”

Bethell Codrington, global head for international pensions at TMF Group, said that non-domestic Qrops do not necessarily check all the legislation. “It gets published online, so if you don’t keep an eye on the internet you won’t necessarily know about it.

He added that the HMRC is doing a “house cleaning job” of those who are not compliant, but from an Australian perspective it is not a problem.

“All they need to do is get the Australian pensions minister to agree an amendment to the legislation which would state that a transfer of UK tax relieved pension assets to a superannuation fund may not be accessed before 55 under any circumstances [as opposed to certain circumstances].”

“I can’t see why they wouldn’t make this amendment - it has no effect on the Australian domestic pension fund market. If HMRC changed the rules to allow a carve out for Australia, then they would have to do it for every other UK pension scheme.”

ruth.gillbe@ft.com