This year's budget was relatively quiet from a pensions perspective, but there was an important announcement which had immediate effect and which you should consider now with your administrator.
What is the issue?
In this year's budget a new charge was introduced on transfers to qualifying recognised overseas pension schemes (QROPS) unless the transfer is excluded from the charge. This new charge is called the overseas transfer charge (OTC). Both the scheme member and the scheme administrator will be jointly and severally liable to the charge.
Further, a scheme which is currently a QROPS will stop being so on 14 April 2017 if it fails to submit a revised undertaking to HMRC by 13 April 2017. If that happens, transfers to that scheme after 13 April 2017 will be Unauthorised Payments.
When does an OTC apply?
There may be transfer requests already in the system which the new OTC may apply to. If the transfer request was submitted before 9 March 2017 the OTC will not apply.
Further, if the receiving scheme ceases to be a QROPS because if fails to make the necessary undertaking by 13 April 2017 the transfer will be an Unauthorised Payment.
Going forward administration practices and member communication will need to change to reflect the fact that the OTC may be payable.
OTCs - immediate action is needed
You should contact your scheme administrator urgently to check:
- if there are any outstanding transfer requests to a QROPS and, if there are, what date the transfer request was made in order to assess whether an OTC may be payable. Where the transfer request was submitted before 9 March 2017 the OTC will not apply;
- that all efforts are being made to complete the necessary due diligence checks for transfer requests submitted before 9 March 2017 by 13 April 2017;
- where it seems likely that a transfer requested before 9 March 2017 is unlikely to be completed by 13 April 2017, that checks will be made to identify if the proposed receiving scheme has given the necessary undertaking to remain a QROPS;
- that systems are in place to prevent a transfer being made if it would be an Unauthorised Payment i.e. because a scheme which is currently a QROPS has not given the necessary undertaking to remain one, so ceases to be one on 14 April 2017 (due diligence will also be required on any QROPS which has only recently submitted a notification to HMRC);
- that the systems will identify when an OTC is payable and the appropriate deduction will be made from the member's funds before a transfer is made;
- that member communications are amended as appropriate to reflect the new requirements.