The Treasury is working on how to plug a gaping loophole in Qualifying Recognised Overseas Pension Scheme (QROPS) transfer rules for civil servants and public sector workers.
Chancellor George Osborne banned transfers from public funded pensions to QROPS with the advent of flexible access freedoms from April 6, 2015 – but overlooked a rule that allows civil servants, the armed forces, National Health Service staff, policemen and fire service workers to switch their funds overseas.
The government has realised that the ban does not cover transferring a UK public funded pension to a QROPS if the pension provider is not offering a workplace scheme and is based in the European Economic Area (EEA).
The EEA comprises all the European Union member states plus Norway, Iceland, and Liechtenstein.
That leaves a choice of 21 QROPS financial centres offering 242 overseas pensions, according to the HM Revenue & Customs (HMRC) QROPS List published on August 1.
New legislation planned
However, many of these pensions are unlikely to be suitable for transfers as they are single member schemes or require the retirement saver to live in the country where the pension is based – and not that many British public workers or civil servants retire to Iceland.
One popular option is a Malta QROPS.
Malta is an EU state and allows retirement savers with pensions on the island to live wherever they wish in the world.
A Treasury spokesman said: “The intention was to restrict the transfer of all public funded pensions to any QROPS, including those set up in the EEA.
“We are discussing this with pension providers ahead of announcing new legislation to make this so.”
No date was announced for the new rules.
QROPS and EU law
The sticking point in redrafting the legislation appears to centre on EU rules allowing the free movement of capital within member states.
In April 2006, QROPS were established to allow retirement savers to take their pension funds with them if they moved to other EU states. Withdrawing this freedom could well lead the British government to clash with the European Commission.
The European Union has one QROPS specifically set up to allow easy access to retirement funds for British expats or foreign workers with UK pension rights.