The total value of transfers to overseas pension schemes has fallen by 12 per cent in the past year partly due to the industry’s crackdown on scams in this area, experts have said.
Data published by HM Revenue & Customs last week (July 31) showed the number of transfers to qualified recognised overseas pension schemes (Qrops) had dropped by 12 per cent to 4,400 in 2019/20, compared with 5,000 in 2018/19.
The value of transfers also suffered a drop of 14 per cent to £550m (£640m in 2018/19).
This was the fifth consecutive annual decline in the value of transfers, and significantly lower than the £1.8bn peak value seen in 2014/15.
The average value of transfers also declined by 2 per cent to hit £125,000.
According to Martin Tilley, director at Hurley Partners, the trend was likely down to HMRC’s crackdown on scams in this area and its introduction of the 25 per cent overseas transfer charge.
The charge was introduced in March 2017 as a way to stop people from exploiting tax loopholes when transferring pension funds out of the UK to avoid UK tax.
However, scheme members can claim back this charge if circumstances have changed and they are now exempt, for example, if the person transferring the funds becomes a tax resident in the country that the Qrops is based in.
Mr Tilley explained that Qrops were only ever designed for individuals who had built up a UK pension in a UK vehicle (such as a Sipp or an occupational scheme) and who were then either moving abroad in retirement or, in the case of overseas nationals, returning to their native country.
But Qrops were increasingly used to provide a workaround to the UK legislative framework.
Mr Tilley said: “Without a doubt they were sometimes abused and mis-sold and very rarely will they have achieved the claimed results for UK based individuals.
“HMRC has done much to combat pension scams by introducing the pension age test in 2015, and the overseas transfer charge in 2017. Following these changes over 600 overseas schemes were removed from its register and they continue to review the list and make changes seemingly every month.”
He added: “More recently the banning of pension cold calls and the running of printed and media campaigns will also have educated the public so as not to be misled into vehicles which they do not need and for whom the Qrops has more benefit for the introducer than for the client.
“In the vast majority of circumstances, perfectly good outcomes can be achieved through the various options available in UK registered pension schemes.”
Andrew Tully, technical director at Canada Life, said: “The transfer charge introduced in 2017 has largely done its job in quelling the appetite of people who may have been considering moving their pension to a Qrops arrangement, with the numbers showing a fifth consecutive year of decline in activity.
“Transferring pensions under Qrops rules is a very specialist area of the market but there may be limited circumstances where transferring a pension overseas can make sense.