The latest Qualifying Recognised Overseas Pension Scheme (QROPS) quandary for the government highlights the problems of transferring a pension overseas.
Not only do governments regularly change the QROPS rules – when they do they tend to make mistakes that require sticking plasters to cover the mistakes a few weeks or months later.
QROPS have regularly suffered from this issue.
The latest foul-up comes from the Treasury drafting a ban on the transfer of unfunded public pensions to QROPS from April 6, 2015.
The fear was civil servants and public sector workers would rush to shift their pension funds overseas in the hope they could easier access their cash.
Dash for cash
The Treasury feared this dash for cash would deplete government coffers as public sector pensions are not fund-based like private pensions, but paid out of contributions and reserves.
In a bid to stop money leaking out of the Treasury, the hasty QROPS ban was put in place.
But it seems European Union laws covering the right of freedom to move capital between member states are causing Whitehall mandarins a bit of a headache.
Hang on! Wasn’t that the exact reason why the British government established QROPS in April 2006?
The initial plan was a portable QROPS would allow British expats or foreign workers who has accrued UK pension rights could shift their funds abroad for easier access when they retired.
Irony of the ban
So QROPS have turned full circle. The irony is the reason why they were set up is now the reason why Chancellor George Osborne cannot ban the transfer of civil service or public sector pensions overseas.
The Treasury has explained the government intend to ban these public pension transfers but has not indicated when – presumably the sooner the better for the Treasury as anyone planning to shift their money overseas into a QROPS has a transfer underway.
The loophole was exposed by the official Teachers’ Pension Scheme. The scheme has written to members urging them to act quickly if they wish to transfer their retirement savings to a QROPS.
The scheme has told members that providing their scheme is in a European Economic Area state, not an occupational scheme and listed on the HMRC QROPS List at the time of transfer, switching funds overseas is OK.