Uncertainty is nobody’s friend it would seem, certainly not a friend to increasingly worried people who have worked hard in the UK and built up a decent sized pension with the intention of retiring to sunnier climates in Europe. With Brexit day looming and the risk of a disorderly exit and another snap election increasingly likely, the prospect of retirement in Europe and living off a UK pension looks increasingly uncertain.
There has been a marked increase in individuals enquiring about, and indeed transferring, their UK pension schemes in to a QROPS (Qualified Recognised Overseas Pension Scheme). With growing fears surrounding Brexit, clients who intend to retire outside the UK are rightly considering transferring their UK pension to the EU in advance of March 2019. Once the UK is no longer bound by the fundamental EU freedom of free movement of capital Treaty the ability to transfer after Brexit could be prevented or penalised.
The 25% Overseas Transfer Charge was introduced in March 2017 to capture certain transfers of UK pension rights outside the UK and it would not be too far fetched to see this extended, post-Brexit, to capture all pensions transfers outside the UK, even where the client is resident in, or intends to become resident in, an EEA/EU jurisdiction.
Industry rumours recount another possible Brexit-related threat which would see the availability of QROPS being severely restricted, so that transfers from UK pension schemes could only be made to a QROPS that is based in the jurisdiction where the pension holder is resident. This would, of course, severely restrict access to QROPS since most jurisdictions in Europe do not make non employer pension schemes available.
A disorderly Brexit could also herald further volatility in the value of Sterling, which would of course reduce the value of Sterling- denominated UK pension schemes. Where the pension holder intends to retire outside the UK and receive an income in Euros, it could be wise to move UK pension scheme to a multi-currency
QROPS as soon as possible, so as to limit exposure to currency fluctuations. The Prime Ministers “Chequers” Brexit deal appears to be the UK Government’s only Brexit plan, and as it stands the risk of that deal being approved by Parliament is diminishing by the day.
Many advisors are therefore urging private individuals who intend to retire to Europe whom have a substantial exposure to UK pensions to give careful consideration to transferring to a QROPS in the EU whilst they still can, as any potential changes to the current freedoms could be enacted as soon as March 2019.
A QROPS can prove beneficial for many reasons, be it to protect against or cap onerous Lifetime Allowance Excess Charges, to consolidate a number of UK pension schemes in to a single overseas pension scheme with greater investment flexibility or as a planning strategy in advance of retiring outside the UK in the future.
Away from pensions, political uncertainty is seeing people who have worked in the UK but intend to retire in Europe with the means to do so, take steps to plan their exit from the UK and in some cases begin to move assets outside the country well in advance. The prospect of aggressive tax measures such as a Departure tax that has been mooted by Labour is also a possibility. This would have the effect of creating a tax charge on UK assets at the time an individual leaves the UK as Canada has done.
Taking advice and structuring wealth securely well in advance of possible future risks arising have always been true, now more so than ever.