A crackdown on moving a UK pension offshore, and cuts to the money purchase annual allowance, were the big-ticket items for the pensions industry in the 2017 spring Budget, announced earlier this week.
Chancellor Philip Hammond's first and last spring Budget set out the government's strategy as Brexit approaches.
Those looking to move a UK pension offshore to qualifying recognised overseas pension schemes (Qrops), on or after 9 March 2017, will now face a 25% tax charge.
The charge will not apply if, from the point of transfer, both the individual and the offshore pension scheme are in the same country, both are within the European Economic Area (EEA), or the Qrops is provided by the individual's employer.
Les Cameron, head of technical at Prudential, said: "The government has been gradually reducing the attractiveness of Qrops for several years, but the new charge has come out of the blue."
Although some planned transfers will still be able to go ahead, others will be stopped or paused until the impact of the charge has been considered.
Cameron added: "The last thing anyone wants is to incur an unplanned 25% tax charge – this is high-value business and time needs to be taken to consider the full impact of today's announcement."
Payments out of funds transferred to a Qrops on or after April 6, 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident, the government said.
This means that UK tax charges would also apply to a tax-free offshore pension transfer if, within five tax years, an individual becomes resident in another country.
Meanwhile, calls to reverse looming cuts to the money purchase annual allowance were ignored and will be reduced from £10,000 to £4,000 next month.
Kate Smith, head of pensions at Aegon, said the company was disappointed the chancellor plans to continue with the proposals.
She said: "We expect few people will be aware of the risks they're running by continuing to make pension contributions once they've begun accessing their savings."
Self-employed people were also hit by the latest Budget announcement, with an increase in national insurance.
Critics of the move said the government should consider including self-employed people in auto-enrolment.
Adrian Boulding, director of policy at Now: Pensions, said: "We believe now is the time to in include self-employed people – auto-enrolment has been a great success, but the five million self-employed people in the UK are excluded."
Boulding said with the review of auto-enrolment taking place later this year, the government has an opportunity to look at including them.
First published 10.03.2017
Lindsay.sharman@wilmingtonplc.com
