Transfers from unfunded public sector pensions – including pensions for teachers, the civil service, the armed forces, and the police and fire services – were banned from being transferred into QROPS and other defined contribution schemes when the pension freedoms came into force in April.
However, the government has admitted there is a loophole in the system where overseas transfers are allowed if pension schemes are administered in the European Economic Area (EEA).
A spokesperson from the Treasury said: “We are clear that the transfer restrictions from unfunded public service pension schemes should apply to transfers to qualifying recognised overseas pension schemes, including those based in the European Economic Area.
“We are currently consulting with pension schemes ahead of introducing legislation to enforce this.”
Constitutional protection
Stewart Davies, chief executive of Momentum Pensions, said – while he has not seen any evidence of challenges to the current rules – any challenge would be based around the free movement of capital within the European Union.
“Clearly the UK Government needs to look at this loophole, but there may be an element of EU constitutional protection for transfers to EEA/EU schemes, provided they in turn are listed on the updated QROPS list.”
Short-lived
Roger Berry, managing director of pension provider Concept Group, said: “All offshore pension providers ever really want is a level-playing field and some stability.
“It’s understandable that the UK may wish to restrict access to their new pension flexibility from government schemes, and since April that has theoretically been embargoed.
“It does appear some providers may be looking to provide a workaround,” he said. “It’s pretty clear that offering anything that HMRC feels is against the spirit of the QROPS legislation is going to be short-lived, so I can’t imagine it will last long if a loophole has been found.”
Last month, HM Revenue & Customs culled 1,600 QROPS from its list of overseas pensions.
This was largely because regions did not comply with UK rules that only allowed pension holders’ early access to their savings if they were facing “serious ill health”.
