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When the smoke over Qrops clears

When the smoke over Qrops clears
 Credit: Carl Court/Getty Images

The Budget shocks keep coming with the chancellor abandoning one of his key policy measures following the u-turn on national insurance contributions for the self-employed.

But there is no prospect of a similar dramatic about-face on the surprise announcement that transfers to qualifying recognised overseas pension schemes (Qrops) within the European Economic Area for individuals not resident in the EEA are now subject to a 25 per cent overseas tax charge. 

The speed of the changes with the measure coming into effect from midnight on Budget day might have been appropriate for a change in petrol duty or the price of a pint, but it was definitely not appropriate for pension funds.

It was entirely predictable that the initial reaction from the pension industry was panic in some quarters, with real concern about the future of Qrops.

Shock announcements can do a great deal of harm. They can leave advisers – and consumers – high and dry, lacking the insights they need to provide recommendations. For those of us championing the absolute necessity for a transparent pensions industry, this was a cause of concern.

The government is arguing it is making the changes to encourage fairness in the tax system and claims that a minority of the 10,000 to 20,000 transfers to Qrops each year will be subjected to the new rules. 

There must be some doubt that it will happen as forecast. The British expatriate community is more mobile than ever. Just as a job for life is now a distant memory for most workers, a single country of residence outside your home country is a rarity for expats. 

Even those who today think they will be working in just one country may change their minds later down the line as tempting career opportunities present themselves in new jurisdictions.

The Treasury expects the changes will net it £60m a year by 2021/22. However, I question those calculations because it seems incomprehensible that consumers will structure any transfer that would lead to this charge.

The changes are already in place and providers need to ensure advisers are crystal clear about the way ahead.

The first point of note is to emphasise that if the Qrops is in the EEA and the member is resident in an EEA country with no intent to relocate, then nothing has changed.

This also applies for UK transfers outside the EEA if the Qrops and member are in the same country or territory and additional exclusions exist if the Qrops is an employer-sponsored occupational scheme, overseas public service pension scheme or a pension scheme established by an international organisation and the member is an employee. 

The key focus is the impact on the three main Qrops jurisdictions: 

* Malta: Unaffected for EEA resident members. Where the member is outside the EEA, a transfer to a Malta Qrops will incur the 25 per cent charge.

* Gibraltar: Unaffected for EEA resident members. Where the member is outside the EEA, similarly the transfer will incur the 25 per cent charge.