A pensioner retiring elsewhere in the European Union is free to transfer the pension fund to an approved pension provider in the new country of residence. That country's pension rules,  available administration procedures and fund investment options may differ, but there is no objection in principle to removing the fund from the UK and away from UK government oversight. An ex-pat pensioner may move his fuind to his new country of residence for a number of reasons, such as avoiding the risk that the exchange rate will move against him, resulting in a pension paid in pounds sterling no longer having the same purchasing power as it would if paid in the local currency, such as the Euro. Local laws on tax and inheritance may also be a factor. The UK has double taxation treaties in Europe to ensure the pensioner only pays tax to one member state.

A pensioner wishing to retire and move his pension outside Europe must find a suitable pension provider in the new country of residence who will give an undertaking to HM Revenue & Customs to manage the pension in accordance UK tax rules. Some countries, like Australia, receive so many UK pensioners that it is relatively easy to find an affordable home for the pension fund which can give the necessary undertakings and manage the administration and reporting which is required. Other countries, like Brazil, have no pension providers equipped to manage a pensioner's fund in accordance with HMRC rules, indeed it would be completely uneconomic for a local pension company to offer to do so for one single customer. Effectively, the pensioner can not take his pension these countries. This can lead to serious problems, quite aside from the risk of currency fluctuations. The new country of residence may have different laws of inheritance, or splitting of pension on divorce, or special rules on holding and declaring money in overseas jurisdictions, or receiving income from abroad. Brazil, in this example, does not recognise the concept of a trust and has no Double Taxation treaty with the UK, so the outcomes for a number of possible situations that might arise are uncertain and might require costly advice or rulings.

A pensioner wishing to retire in a non-European country may therefore be confronted with the option of setting up a bafflingly complex and prohibitively expensive bespoke QROPS arrangement (Qualifying Registered Overseas Pension Scheme) or abandoning the hope of returning home or retiring abroad altogether.

The UK is therefore effectively preventing some people from emigrating, perhaps even to their country of origin, with no apparent benefit to the tax-payer or other justification. (On an informal basis, the UK currently may give credit against UK tax for certain equivalent taxes paid abroad by the individual – so the UK would not lose significant revenue by simply allowing the pensioner's fund to go abroad). Meanwhile, the state remains liable for health care, schooling or other benefits for the trapped individual and his family, people who would have been willing to forego them if only they were "allowed" to emigrate.

Clearly the Government wishes to avoid the situtation where an individual, having enjoyed tax advantages in building up his pension fund, then fritters his pension away and then dumps himself penniless on the mercy of the state. Hence the prescribed limits on taking cash and income from a pension fund. But it is questionable how far the majority should be over-regulated in order to control the feckless or unfortunate few:  perhaps some basic and easily manageable precautions could be taken, while allowing the individual more liberty to run his life.

For example, the emigrant might be required for a certain period (5 years?) to deposit an amount equivalent to 3 years worth of the state benefits he might be entitled to claim were he to return to the UK and claim benefits. This amount would be held in a designated type of account by any participating bank, earning interest (like an ISA) and would be repayable with cumulative interest on maturity free of UK tax. If the individual had meanwhile returned to live in the UK, the deposit would be frozen and available to the Government for a defined period to offset the cost of any benefits claimed.

A simpler alternative, although possibly a little discriminatory, might be simply to allow unrestricted export of substantial pensions (e.g. having a value in excess of  £500,000) on the basis that the holder is less likely to be frivolous or inept in their financial dealings, a genuine emigrant rather than someone trying to defeat the system, to draw down and spend all their cash.






Why is this idea important?

There are many cases where rules are made to control misbehaviour of a few and as a result the liberties of the sensible majority are infringed. But a good intention doesn't always make blanket restrictions acceptable. Every effort should be made to give families the maximum possible freedom to manage their lives and their financial affairs and in an increasing number of cases, after the family home, the family's pension schemes are their major asset. Yet pensions are heavily regulated and few people feel they have any control of their money or their options for using the pension. There is a general sense of powerlessness and mistrust in relation to pensions. This proposal should be part of a number of de-restrictions that are long overdue.

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