For the growing horde of emigrating Brits, the facility to transfer one’s pension abroad  may look attractive, but could be fraught with pitfalls for the unwary.

Since 2004, UK migrants have been able to move their pensions to foreign schemes without the UK scheme incurring an ‘unauthorised payment charge.’

This is only possible if the scheme is on HM Revenue & Customs’ list of qualified Recognised Overseas Pension Schemes (QROPS). (http://www.hmrc.gov.uk/pensionschemes/qrops.pdf)

This is a list of QROPS that have consented to have their details published (not all QROPS will necessarily feature within it) and HMRC says it is not to be taken as a recommendation for a particular scheme or product.

The list is updated twice a month, with new QROPS added or rogue ones removed, as was the case recently when three Singaporean schemes fell foul of HMRC’s rules.

HMRC spokesman Patrick O’Brien says: “QROPS are only for genuine migrants who have gone to live abroad permanently and who have already resided overseas for at least  five years when the transfer takes place.

“We are scrutinising these schemes very carefully to ensure that people are not using them as a tax dodge to get their hands on their entire pension in one go. We found that some schemes in Singapore were breaking the rules so they have been removed from the list. It is up to an individual and their adviser to sort this out as they knew what the rules were when they did this.”

To pass muster with HMRC, the receiving pension scheme must confirm that at least 70 per cent of the fund will be used to provide the planholder with a lifelong income in retirement and that the money cannot be taken out before the member is at least age 50.

The attractions of this are obvious. Some foreign pension schemes enable you to withdraw large of chunks of your pension at one time and for the balance to be passed to family and heirs free of tax when you die.

For anyone still living in the UK or who has only left the UK recently, HMRC will only allow transfers to schemes that run along the same pension rules as in the UK.

Financial advisers have expressed caution about these schemes and are wary about advising on them because of the risk of a scheme’s qualifying status being removed after a transfer has taken place. Transfers can also be expensive, possibly incurring an initial charge of 6 per cent and an annual charge  of 2.5 per cent.

Jason Witcombe, an IFA at Evolve Financial Planning said: “It sounds great, but if I were advising on one, I would do my research very carefully. There could be a problem with people trying to have their cake and eat it. I would probably refer it to someone specialising in this area.”

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