Chancellor, Rachel Reeves, has announced plans to reduce tax-free overseas transfers of tax relieved UK pensions, and to update the requirements for European Economic Area Overseas Pension Schemes.

The Autumn Budget papers confirmed that the government will remove the exclusion from the Overseas Transfer Charge for transfers to Qualifying Recognised Overseas Pension Schemes in the European Economic Area (EEA) or Gibraltar from 30 October.

In addition to this, the government will bring in line the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA with OPS and ROPS established in the rest of the world from 6 April 2025.

The government will also require scheme administrators of registered pension schemes to be UK resident from 6 April 2026.

AJ Bell head of public policy, Rachel Vahey, pointed out that the abolition of the lifetime allowance rules back in April created an "interesting situation" where pension savers could double dip on their pension allowances by transferring overseas.

“Those with large pension funds could leave £1,073,100 in their UK scheme and transfer any excess to a qualifying overseas pension scheme," she explained. "They then could take their maximum tax-free lump sum of £268,275 from their UK scheme, as well as any tax-free cash entitlement from their overseas scheme."

However, Vahey warned that whilst HMRC has now closed this loophole, it may have caused pension currency "chaos" for overseas retirees in the process.

She explained: “It has removed the exclusion that the overseas transfer charge (OTC) will not apply if someone transfers to a QROPS in the EEA or Gibraltar, even though they were not resident in the same country.

“One consequence is those who want to retire overseas, but where there are no QROPS registered in their new country of residence, will be forced to keep their pension scheme in the UK or face a 25 per cent charge on transfer.

“As overseas residents may struggle to hold a UK bank account, and many UK pension schemes won’t pay to non-UK bank accounts, this could leave these overseas retirees in a difficult position.

“Even where they can hold an account, they still face a harsh choice whether to juggle currency risks when taking pension income or lose 25 per cent of their pension wealth on transfer.”

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