New UK Pension Tax Reform Act 2015

HMRC to Shake Up Pension Tax Rules in April 2015

HMRC are introducing sweeping changes to the pensions industry. Here is how the pension tax rules may pan out on April 6th, 2015.

Effect on UK Final Salary Schemes

  • Transfers from private sector Final Salary Schemes, known as Defined Benefit (“DB”) Schemes to a SIPP or QROPS can still go ahead, however, this will only be allowed following the receipt of financial advice from an FCA regulated company. It is unclear yet as to whether there will be any allowance for advisory firms regulated in other territories. Exact details of this will follow in the proposed legislation
  • As expected, transfers from unfunded public sector schemes (e.g. NHS, civil service, teachers and the armed forces) to defined contribution schemes will no longer be permitted, however, transfers from funded DB schemes will be permitted (e.g. some local government pension schemes)
  • There will be further consultation on the ability to take partial encashments from Defined Benefit Schemes, although it is not clear how this would work in practice

Effect on Tax in the UK

  • The Government will act to ensure that individuals do not exploit the new system to gain unintended tax advantages.
  • It has been confirmed that the government see the 55% tax charge on death as too high and it will be amended in the Autumn statement. There is no indication that this will be removed and the market consensus is that bringing it into line with IHT (40%) or highest marginal rate of income tax (45%)
  • A Pensions Tax Bill will be introduced in the Autumn to introduce the required tax changes, and draft legislation and a further consultation document will be issued in August 2014 on this.

Effect on Overseas Pension Transfers (QROPS) for Expats

  • The Government recognises that the changes to the pensions tax rules outlined in this chapter will have implications for the rules relating to Qualifying Recognised Overseas Pension Schemes (“QROPS”). The Government will consider these implications further to ensure that the rules relating to QROPS are appropriate when the new system comes into force.


  • Annuity rules will be changed to allow a guarantee period of greater than the current 10 years, to provide a lump sum in the case of early death. A longer guarantee period will have the effect of a reduction in the annuity rate available.

In summary, the changes proposed in the UK Budget are to go ahead with a few slight changes (Final Salary Scheme transfers will be allowed) although HMRC are aware that there are “Tax planning opportunities” and as such are introducing a Pensions Tax Bill in the Autumn to protect against unintended consequences. They are also looking at QROPS rules to ensure they fit the new regime.

There is also talk of scrapping personal allowance for income tax for expats, although this is just speculation at this time. If this was the case, this would mean British expats who leave their pension in the UK would be income tax on their ENTIRE pension.

Analysis of the New Pension Tax Rules for 2015

Public sector pensions are seriously underfunded to the tune of £1.2 trillion which is the equivalent of £45,000 per household, and the debt is increasing rapidly as the government can’t cover its obligations. This is compounded by the fact that people are living longer and pensions will have to be paid out for longer.

The Government says total outstanding public sector pensions liabilities are equivalent to 53% of GDP (total UK national income). The IEA/IOD puts the true cost at 74% of GDP. Towers Watson, a highly-respected group of actuaries, calculates total liabilities as no less than 83% of GDP. That is higher than our national debt.

With a low interest rate environment, final salary schemes are receiving particularly high valuations. If every British expat transferred out, the government would be in serious trouble. Doctors, nurses and teachers have until around October to realistically get their QROPS applications in as it takes 3 – 6 months to transfer.

The Government Stance on Public Sector Pension Schemes Going Forward

The government has said the level of pension being offered to public sector workers is unsustainable because of increasing life expectancy, and has decided public sector workers should:

  • Work until age 68 instead of age 60 before receiving their pension;
  • Contribute more towards their pension, an average increase of 3.2 percentage points (not percentage), although those earning under £15,000 a year will be exempt from the increase and those earning £15,000 to £21,000 will have contributions capped at 1.5%;
  • Receive less when they retire due to a shift away from final salary and towards a ‘career average’ scheme;
  • Have pensions increased in line with the consumer price index (CPI) rather than the more generous retail price index (RPI).

We are recommending clients who have public sector pension schemes to transfer out whilst they still have the chance.

It takes 3 – 6 months to transfer the pension and the deadline is April 6, 2015, so there are only a couple of months left to transfer.

We will also do a free transfer value analysis, so that you can make an informed decision on whether to transfer to a QROPS or keep it within the UK tax system.

99 Australian QROPS Axed in HMRC Clampdown

99 Australian QROPS Removed from the Latest HMRC QROPS List

The Inland Revenue have just removed 118 QROPS schemes from its latest list including 99 Australian QROPS, 15 Indian QROPS, 3 Canada QROPS and 1 Mauritius QROPS are no longer accepting transfers in.

The Inland Revenue always decline to comment on why a Qualifying Recognized Overseas Pension Scheme is removed from the list. Sometimes it is non-compliance from an administrative perspective and sometimes it is for more devious reasons such as cashing-out pensions, using it as a transit vehicle or illegal tax avoidance. Just because a QROPS has been removed from the list doesn’t mean that it can’t be added back once it has gained compliance.

Australian QROPS providers have faced problems before with over 100 excluded from the list back at the beginning of 2010. The biggest crackdown came two years later when most Guernsey schemes and the new Isle of Man schemes which were created were shut down. They also closed all New Zealand schemes which didn’t have a New Zealand based discretionary fund manager.

For those living in Australia, there are many options, notably the large Australian Super which can be transferred into. For those in Australia, but thinking or retiring elsewhere or those who want more flexibility in investing, you can transfer to a QROPS in Malta who have a Double Taxation Agreement with Australia.

Similarly, British expats in Canada and returning Canadians who have worked in the UK can also transfer to a QROPS in Malta for efficient tax and retirement planning. Malta has a Double Taxation Agreement with Canada.

The culling of 118 QROPS schemes shows how quickly the QROPS market is evolving. The safest place to transfer is to use large reputable firms such as Boal & Co., Brooklands, Momentum or Sovereign Trustees to protect your pension from UK taxation.

You will need to engage with a QROPS specialist and ask them for a Transfer Value Analysis System (TVAS) report so that you can compare leaving your pension in the UK with a pension transfer overseas. Most reputable financial advisers will be able to prepare a report for you.

QROPS Transfers and International Pensions for South African Expats

International Pension Planning for South African Expats

South Africans who are working in London or elsewhere in the world can set up an international pension plan to avoid taxes back home in South Africa. They can avoid donations tax, CGT and IHT.

If they have paid into a British pension plan, they can also move this pension offshore to avoid taxes if they are retiring outside of the UK at a later date. They can avoid the UK tax upon death and UK income taxes.

The International Retirement Plan for South African Expats

Sovereign’s Conservo International Retirement Plan is proving extremely popular in South Africa and with returning South African expats across the globe.

The Conservo is a Guernsey-based 40EE International Pension Plan (IPP), which offers significant tax advantages for South Africa-based retirees.

The Benefits of the International Pension Plan for South African Expats

  • Can access at 50 years old
  • Avoids South African Donations Tax
  • Avoids South African Estate Tax
  • Can mitigate Capital Gains Tax in S.A.

Contributions to Conservo usually fall outside the scope of South African Donations Tax.

Once invested, the underlying assets will generally grow tax free and without source taxation in Guernsey. Retirement benefits may be accessed from age 50 and the member may elect whether to receive: a lump sum; an income stream; or a combination of both.

Capital paid into the plan will be returned to the member without any tax liability in South Africa. With appropriate structuring the plan may also mitigate South African Capital Gains Tax (CGT) liabilities on investment growth.

On death, the Conservo’s assets will usually be exempt from South African Estate Duty. There is also the option for assets to be passed into a new trust for surviving beneficiaries. The Conservo offers unrestricted investment options and the facility to make regular monthly contributions. Existing assets may be transferred to the plan in lieu of cash contributions.

The plan offers a very competitive charging structure, which starts at £750 to establish and £900 as an annual administration fee. (2014 prices)

QROPS for South Africans Who Have Worked in the UK

South Africans who have worked in the UK and built up a substantial pension can transfer their UK pensions to a QROPS to avoid UK taxes.

  • Avoid 55% tax upon death
  • Avoid UK income taxes of up to 45%
  • Transfer your pension to Rand or keep in GBP or other currencies
  • Choose from the top hedge fund managers in the world
  • Pass 100% of your pension on to whomever you like upon death
  • Make estate planning much easier
  • Target higher returns through effective financial planning

Please email us for more information and ask the QROPS Specialists a question.