Is fear of Brexit a suitable reason to transfer your UK pension to a QROPS?

Woohoo, another Brexit story. Hold me back, you say.

However, I have seen a number of articles recently extolling Brexit as a bona fide reason for transferring a UK pension to a QROPS (Qualifying Recognized Overseas Pension Scheme) and I wanted to try and separate some of the fact from the fiction.

In no particular order, here are 3 of the main justifications that I have seen:

Doubt about the ability to transfer a pension to a QROPS post Brexit

The UK government has confirmed that members of UK pension schemes will be able to transfer their pension to another scheme in the EU under any Brexit scenario.

In a written answer to Parliament, Guy Opperman, minister for pensions and financial inclusion, said the current rights of citizen in transferring their pensions to overseas pension schemes will be maintained, even under a no deal Brexit.

Even as things stand today, it is possible (although not advisable) to transfer a UK pension to a QROPS that is outwith the EU. Therefore it is reasonable to assume that this right to transfer will remain once the UK is also outwith the EU.

Overseas Transfer Charge (OTC)

While, as per the above, the UK government has offered reassurance that people will keep the right to transfer their pensions overseas, whatever happens with Brexit, it has stopped short of making any tax promises.

According to economic secretary to the Treasury, John Glen:

“Whether or not these transfers will be exempt from the Overseas Transfer Charge once the UK leaves the EU is dependent upon the terms of future exit agreement between the UK Government and the EU.”

Currently the OTC applies when a pension is being transferred to a QROPS that is established in a country that is not within the European Economic Area (EEA).

The big question is, what happens when a pension is being transferred from a scheme that is established in a country that is not within the EEA, i.e. the UK? In such a case, would the OTC apply?

In reality, at the time of writing this, nobody knows one way or the other.

Pension taxation pre and post Brexit

It is important to understand that it is the Double Tax Treaty (DTT) between the jurisdiction where the pension is located and where you are resident that will decide the tax payable on your pension, not the actual pension product itself (this can actually lead to individuals having to pay tax on the supposedly tax-free lump sum part of their pension).

These DTTs won’t change post Brexit and as a result there will be no difference in the way that tax will be declared or paid.

Conclusion

Ultimately, whether a QROPS makes sense for you has little to do with Brexit and you shouldn’t rush any decision simply based a headline cajoling you to “take control of your pension before Brexit”.

Instead, I believe that you are better off making any decisions regarding your pension based on being well informed as well as your own individual circumstances.

 

Further reading:

How the Overseas Transfer Charge affects a QROPS transfer

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