There were few pensions-related announcements in Philip Hammond’s last Spring Budget speech¹, the full Budget Report², or the usual deluge of documents published after he sat down³.

QROPS transfers

A mention of action to ‘tackle abuse of foreign pension schemes’ turned out to mean a hefty new charge on transfers to ‘qualifying recognized overseas pension schemes’ (QROPS) by those seeking tax advantages.⁴ The ‘overseas transfer charge’ will be twenty-five per cent of the amount transferred, less any lifetime allowance charge that is generated (a transfer to a QROPS being a ‘benefit crystallization event’). It seems that if the transfer is made by a registered pension scheme, the scheme administrator will be expected to report and pay the charge, using the Accounting for Tax system, and deduct the charge either from the transfer value or the member’s residual entitlement (if any) in the scheme.

The new tax charge applies to any transfer to a QROPS that is requested on or after 9 March 2017. Exceptions will be made in some circumstances, so that no overseas transfer charge applies. The most notable exclusions are for people transferring to a scheme located in the country in which they live, residents of the European Economic Area who have QROPS based elsewhere in the EEA, and occupational pension schemes sponsored by the transferor’s employer.

The charge will also apply in some circumstances to QROPS-to-QROPS transfers. As a result, overseas pension schemes will cease to be considered QROPS unless the scheme manager gives Her Majesty’s Revenue and Customs (HMRC) an undertaking that they will comply. Managers of pre-9 March 2017 QROPS will have until 13 April 2017 to give the required undertaking. If they do not, the schemes will automatically cease to be QROPS (ruling them out as transfer destinations) on 14 April 2017. We understand that HMRC plans to withdraw the list of schemes that purport to be recognized overseas pension schemes, before publishing an updated version on 18 April 2017.

Money purchase annual allowance

The Government has confirmed that it will proceed with a swingeing cut to the money purchase annual allowance.⁵ As proposed in the Autumn Statement 2016, the change will reduce the MPAA from £10,000 to £4,000, effective from 6 April 2017.

Miscellaneous other announcements:

• Class 4 National Insurance Contributions (paid by self-employed people, based on their profits) will increase from 9 per cent to 10 per cent in April 2018, and to 11 per cent in April 2019 (essentially because the self-employed can earn the same rights under the new, single-tier State pension as those in employment);
• the Government’s report on the outcome of the first statutory review of State pension age will be published by 7 May 2017;
• the tax-registration process for master trust schemes will be aligned with the new authorization and supervision regime that is to be brought in by the current Pension Schemes Bill; and
• there will be a Green Paper on the financing of adult social care.

A pessimist might note that Hammond had already decided that autumn is a better time for significant Budget announcements, and speculate that he could be saving any big changes until then. The new overseas transfer charge, which has immediate effect, will be of interest to trustees and their administrators, who will need to familiarize themselves with the details and speedily adapt their processes.

¹ <http://www.gov.uk/government/speeches/spring-budget-2017-philip-hammonds-speech>. Hammond noted wryly that he is not the first Chancellor to announce an end to Spring Budgets. Norman Lamont did so twenty-four years earlier—ten weeks before he was sacked
²<http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597467/spring_budget_2017_web.pdf>.
³ <http://www.gov.uk/government/publications/spring-budget-2017-documents>, and <http://www.gov.uk/government/collections/spring-budget-2017-tax-related-documents>
⁴ Main announcement at <http://www.gov.uk/government/publications/qualifying-recognised-overseas-pension-schemes-charge-on-transfers/qualifying-recognised-overseas-pension-schemes-charge-on-transfers>; draft guidance at <http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597451/overseas-transfer-guidance.pdf>; draft legislation at <http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/597496/Pensions-overseas-transfers-draft.pdf>
⁵ <https://www.gov.uk/government/publications/reducing-the-money-purchase-annual-allowance/reducing-the-money-purchase-annual-allowance>