Between 6 April 2016 and 5 April 2017, there were around 9,700 qualifying recognised overseas pension scheme (Qrops) transfers collectively worth £1.22bn ($1.59bn, €1.36bn).
For the first time since 2009/10, there were fewer than 10,000 Qrops transfers. Despite the drop in numbers, the collective value of the pots sent overseas was the fourth highest in the past 10 years.
With pension transfers rounded to the nearest 100 and the value of the sums transferred rounded to the nearest £10m, the chart below shows the changes in Qrops transfers since they were first introduced in April 2006.
In the 2017 Spring Budget, chancellor Philip Hammond announced that Qrops transfers would incur a 25% charge if they were sent to non-EEA countries in which the pension owner did not reside for at least five years after the transfer date.
The charge was effective immediately and applied to all Qrops from 9 March.
The UK Government provided no indication ahead of the Budget that it intended to introduce such a charge and it therefore would likely have had limited impact during the month it was in place in tax year 2016/17.
One part of the jigsaw
Rachael Griffin, financial planning expert, Old Mutual Wealth, commented: “We have known for some time that the Qrops market is maturing.
“There have been numerous regulatory changes over the years which have made pension transfers to a Qrops more complex, such as the need to have a UK regulated pension specialist approve transfer cases. The new 25% transfer tax charge will undoubtedly show in next year’s numbers where we expect a further decline.
“However, Qrops transfers are just one part of the jigsaw, and there are other wrappers which advisers will use with their clients to help them meet their long-term retirement needs. With defined benefit pension transfer values still at record highs we expect the pension transfer market to continue to be strong.”
John Batty, technical sales manager at Boal & Co, is unsurprised by the drop off in the number of transfers but says the numbers still show a healthy market.
“I think this reflects that Qrops is a mature market and ultimately a client can only transfer his UK pension out once.
“The more interesting figures will be for the next few quarters once the impact of the changes in March filters through. The falloff in Qrops does also seem to coincide with the introduction of UK pension freedoms, which may have attracted people to UK Sipp transfers to take advantage of this.”
Similarly, Iain Farr, group head of distribution for STM Group, is unsurprised by the fall in Qrops transers, which is “in line with feedback from many advisers”.
“In general terms, there was a trend in some jurisdictions for advisers to recommend a transfer to a Sipp rather than a Qrops, this being one of the reasons why STM acquired the Sipp provider London & Colonial in 2016.
“Once you factor in the challenges around defined benefit transfers it really is no surprise that the global number of Qrops transfers have reduced in number.”
Record pension freedoms access
More people accessed their UK pension savings between April and June 2017 than in any other quarter since the pensions freedoms were introduced in 2Q15.
Data from HM Revenue & Customs also revealed that the total value of the pots accessed under the freedoms was £1.86bn, the largest amount ever paid out in a single quarter.
The average payment per individual was £9,300 in Q217, compared with just over £11,000 in 2Q16.
It should be noted, that the industry reporting requirement was not made mandatory until April 2016 and will likely skew the early data.
Rachel Vahey, product technical manager at wrap platform Nucleus, pointed out that the recent data “covers the end of the tax year, when we would expect more activity”.