The total value of transfers to overseas pension schemes (QROPS) has fallen for a fifth year in a row, following the introduction of a tax charge in 2017, latest official figures have shown.
According to HM Revenue & Customs, the number of pension transfers to QROPS fell 12% in 2019/20 to 4,400 transfers compared with 5,000 in 2018/19.
The value of transfers also tumbled 14% to £550m from £640m a year earlier.
The market has suffered a sustained downward trend since hitting a peak of £1.8 billion in the 2014/15 tax year. HMRC said the fall in the number and value of transfers was likely as a result of changes in requirements and the introduction of an overseas transfers charge.
In 2017, then-Chancellor Philip Hammond introduced a 25% tax charge for qualifying pension transfers in the hope it would discourage transfers from UK schemes by savers looking to reduce their tax liability.
The charge applied to 24 transfers in the tax year 2018/19 raising tax of £760,846.
Jon Greer, head of retirement policy, Quilter, said: “The market has shrunk considerably but now appears to be levelling off. This decline is largely down to a reduction in the amount of defined benefit pension transfers taking place thanks to increased scrutiny and the increased costs that advisers face to participate in the defined benefit transfer market.
“The introduction of a new 25% tax charge in 2017 has further disincentivised pension holders to transfer overseas. It is also a requirement to obtain advice from a UK regulated pension adviser, who has the relevant regulatory permission to advise on such transfers.”
However, Greer explained that a transfer could still prove beneficial for certain pension savers.
He added: “Moving assets into a QROPS can still offer useful flexibility, especially for those people planning to leave the UK permanently that want to simplify their finances by taking their pension with them. At the moment the rules refer to the EEA regarding exemptions from the 25% tax charge, meaning no tax applies on a transfer to another scheme within the EEA. The situation will become clearer following the end of the Brexit transition period.”
Andrew Tully, technical director, Canada Life, said that while the transfer charge had been successful at “quelling the appetite” for QROPS, the product could still hold appeal to certain pension savers but specialist advice was essential.
Tully said: “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. This is where seeking specialised financial advice is critical to ensure all relevant rules are adhered to from both a UK perspective but also for the receiving arrangement.”
