I recently presented a technical webinar on pension transfers which included a look at transfers to qualifying recognised overseas pension schemes (QROPS).

The appeal of transferring to a QROPS has dropped dramatically since the introduction of the overseas transaction charge (OTC) in March 2017. The introduction of this 25% charge has been effective in curbing the movement to QROPS purely for tax planning purposes.

In 2014/15 there were approximately 20,100 transfers to QROPS compared to only 4,400 in 2019/20.

In broad terms, the rules mean where the member is transferring their pension to a country they are not resident in, the OTC will apply, unless it is their employer’s scheme or both the pension and the member are in an EEA country (but they don’t have to be in the same EEA country).

So for people retiring abroad and wanting to take their pension with them to the same country – the OTC won’t apply. It’s also possible to move to, say, Spain, and move your pension to Gibraltar.

There have been a few questions around what happens in a post-Brexit world, as the legislation currently states there’s no OTC if both the member and the pension are in an EEA country. The UK is still treated as being in the EEA until 31 December 2020. But what happens on 1 January 2021?

Fortunately, this is one tiny area of Brexit that does seem to have been sorted - regulations have been put in place that will amend legislation from 1 January 2021 so when the member is resident in the UK or in a country within the EEA and the QROPS is established in a country with the EEA then the charge will not apply.

This means not only can UK residents still move pensions to EEA countries without worrying about the charge, but also removes any concerns for those that already have. As the legislation stands if the pension was in an EEA country and the member ceased to be an EEA resident at any point in the five tax years following the transfer, then the charge would apply retrospectively. Which would have been problematic to say the least!

It’s important to remember the transfer out triggers a lifetime allowance test. Any excess will be charged at 25%, as the amount crystallised is retained in a pension scheme (albeit an overseas scheme). If the pension remains overseas then there will be no further tests. If the OTC also applies then this is applied to the balance after the lifetime allowance charge is deducted.

QROPS will always have their place for those that are still able to genuinely retire abroad post-Brexit, but as purely a tax planning tool then the appeal has been greatly reduced. Let’s not forget pension income is generally taxed in the country the individual is resident in, not the scheme, so if the member is still in the UK then any income taken will be taxed as usual.

Lisa Webster is senior technical consultant at AJ Bell. She is an economics graduate with over 15 years’ experience in financial services. Prior to joining AJ Bell in May 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. She is part of the AJ Bell Technical Team, responsible for providing regulatory and technical analysis to the business and outside world.  Email: This email address is being protected from spambots. You need JavaScript enabled to view it.