The Chancellor, Philip Hammond, delivered his first full Budget yesterday. During a speech in which the Chancellor declared increases to national insurance rates for the self-employed and heralded new funding for social care, the main surprise for the pensions industry (amid widespread rumours of a further reduction in pensions tax relief) was that no significant pensions changes were presented. However, material changes were announced in relation to Qualifying Recognised Overseas Pension Schemes (QROPS) and the previously trailed reduction in the money purchase annual allowance (MPAA) (from £10,000 to £4,000) has been confirmed.
The most significant new pensions measure in the Budget speech was around “tackling abuse of foreign pension schemes”. In a policy paper, the government explains that it will legislate in the Finance Bill 2017 to apply a 25% tax charge to pension transfers made to QROPS except where limited exemptions apply. This change applies immediately to transfers requested
Transfers to QROPS may still be made tax-free in limited circumstances where people have “a genuine need to transfer their pension”, including where the individual and the pension scheme are both located within the European Economic Area (EEA), the individual and the scheme are in the same country or the QROPS is provided by the individual’s employer. According to HMRC policy papers, “if the individual’s circumstances change” within five tax years of the transfer, the tax treatment of the transfer “will be reconsidered” (ie the tax charge may be imposed retrospectively).
In addition, scheme managers of QROPS are advised to decide whether they wish their scheme to continue to be a QROPS and to operate the overseas transfer charge. If so, they must submit an undertaking to HMRC by 13 April 2017 (confirming that they will operate the overseas transfer charge). If this is not done, the scheme will cease to be a QROPS from 14 April 2017. HMRC has said (in an email circular) that it plans to suspend its registered overseas pension scheme notification list from 14 April 2017 and publish an updated list on 18 April 2017.
Further information is now contained in new (and quite detailed) HMRC guidance published on 8 March 2017.
Master trusts and tax registration
The government will amend the tax registration process for master trusts “to align with the Pensions Regulator’s new authorisation and supervision regime”. Changes are due to apply from October 2018.
Previous announcements confirmed
Budget documents also confirm various announcements made in last November’s autumn statement.
- As expected, the MPAA (this is the annual amount individuals can contribute tax efficiently to defined contribution pensions if they have previously accessed a pension flexibly) will be reduced from £10,000 to £4,000 from 6 April 2017. A full response to the recent consultation on this issue is due to be published on 20 March 2017.
- The Finance Bill 2017 will “more closely align the treatment of foreign pensions with the UK’s domestic pension regime”. Following consultation, there will also be some tweaks to the legislation around ending the use of “section 615 schemes” (specialist UK schemes for those employed abroad).
As usual, the Budget was preceded by rumours of radical change to the system of tax relief for pensions – on this occasion they proved to be unfounded. Similarly, there was no mention of ending the state pension “triple lock”. That is not to say, however, that such major changes will remain off the government’s agenda in the long term.
The confirmation of the reduction in the MPAA (announced in last year’s autumn statement) was not unexpected, despite widespread calls for the move to be reconsidered.
Much less widely trailed were the QROPS changes outlined above, which appear to be designed at least partly with a view to reducing transfers to scam arrangements based outside the EEA. Trustees and administrators will now need to review their overseas transfer procedures and member communications urgently in light of new HMRC guidance, noting that the new 25% tax is stated to apply to individuals who request an overseas pension transfer on or after 9 March 2017 and that the registered overseas pension scheme list is due to be suspended on 14 April 2017. A transfer to a scheme that has ceased to be a QROPS is likely to be an unauthorised payment.
Operators of QROPS will also need to take urgent action. They must decide whether they wish their scheme to continue as a QROPS and operate the overseas transfer charge. If so, they must submit a standard form undertaking to HMRC by 13 April 2017 or lose their QROPS status