Autumn Statement  

Government closes 'ridiculous' overseas pension loophole

Government closes 'ridiculous' overseas pension loophole

The government has scrapped what has been described as a "ridiculous" overseas pension rule, allowing "high rollers" working overseas to accumulate tax-free pensions with almost none of the limitations put on UK schemes. 

On Wednesday (23 November), chancellor Philip Hammond announced so-called "Section 615" schemes, which allow UK companies to set up workplace schemes for their overseas employees, would be closed to new contributions from April next year.

According to professional trustee firm PTL, Section 615 schemes grant members unusual benefits, such as open access to funds from age 18, generous contribution levels, and the ability to take the entire balance as a lump sum.

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PTL states that members of Section 615 schemes "can enjoy highly favourable advantages that represent an unrivalled combination of benefits".

While Section 615 schemes have been around for 80 years in the UK, PTL said that, until recently, they were underused.

However, commenting before the Autumn Statement, the firm added the schemes "are currently undergoing a renaissance, as the conditions are perfect now as HMRC clamps down on many of the more aggressive tax-planning strategies".

Montfort International managing director Geraint Davies said the decision to close the Section 615 regime would only affect "high rollers", adding: "It was too good to be true. It was ridiculous that it existed."

He welcomed the suite of policies in the Autumn Statement which clamp down on overseas pensions. These included assessing 100 per cent of foreign pensions money brought into the UK, as opposed to the current 90 per cent.

"It's tidy up time," Mr Davies said. "Hopefully this will end up with UK advisers knowing what they are doing, and overseas advisers put in their place."

John McCreadie, head of UK sales at Qrops and Sipp provider Momentum Pensions, said the decision to close Section 615 schemes to new saving highlighted the need for specialist advice for those employed overseas, and underlined "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," he said.

He added that the decision to bring tax rules for Qrops in line with tax rules for domestic pension provided "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”.

james.fernyhough@ft.com