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The UK budget has been generally hailed as benefitting the retired and retiring. The Chancellor announced that the government intend to allow people more choice on what they can do with their money on pension drawdown. The pension shakeup and the removal of the requirement to purchase an annuity have certainly dominated the budget headlines.
For expat UK pension holders there has long been a benefit in removing pensions from the UK system and the government’s tax net by utilising officially recognised overseas schemes. However tucked away in small print of an official budget briefing note is a section that could remove the right of pension transfer from millions of people:
‘However, the government recognises that greater flexibility could lead to more people seeking to transfer from defined benefit to defined contribution schemes. For public service defined benefit schemes, this could represent a significant cost to the taxpayer, as these schemes are largely unfunded…The government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances’
This will effectively, if enacted, disallow anyone with a public sector (and possibly all other defined benefit pension schemes) from transferring their pension out of the UK. Even if people move permanently abroad their pension will be trapped in the UK and subject to UK income, tax, reduced benefits for spouses on death and subject to full UK Lump Sum Death Benefit tax.
This plan will remove a major benefit available to expats from a swathe of people; civil servants, local government workers, the armed forces, people who work for the NHS, police, the fire service…. the list goes on – millions of ordinary people are effected. Not all of them will become expats of course but retiring abroad is becoming an increasingly popular choice and for defined benefit pension holders the removal of the right to transfer could have a major impact on their financial situation.
Full details have not been released and the UK government has announced it will be holding consultations for 12 weeks until 11 June. Infinity will be watching the situation closely and will bring more details once we have them.
Whether you are in the public or private sector and want to explore pension transfer arrangement get in touch with out specialist pensions desk for some professional, obligation-free advice.
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