Proposals to cap tax-free lump sum pension pay outs at £36,000 provides another good reason for expats to consider switching to a QROPS
The plan would hit anyone with a UK pension fund of £144,000 or more by limiting the amount of cash they could withdraw without paying income tax.
However, because QROPS rules revert to those of their local regulator after the scheme has run for five years, a retirement saver could still take up to a 30% tax-free lump sum from the offshore scheme.
That would make anyone with a QROPS pension fund worth more than £120,000 a winner as a 30% lump sum of a fund of that size is £36,000.
Any British expat or international worker with UK pension rights living permanently overseas can consolidate their onshore funds into a QROPS.
The proposals, from the Pensions Policy Institute (PPI), would also hit higher rate taxpayers who currently receive pension contribution relief at 40% or 45%, as the think tank wants the government to axe variable rate relief in favour of a 30% fixed rate.
The Treasury is said to be keen on this idea as the change would save billions in tax relief every year, although a spokesman played down their enthusiasm.
A Treasury spokesman said: “The government wants to encourage retirement saving, which is why such generous tax relief on pension contributions.”
The PPI considers the changes as wealth redistribution as the least well-off pension savers, basic rate taxpayers, would gain an extra 10% pension relief, while the better-off savers would see a 10% or 15% reduction.
Chris Curry, director of the PPI, said: “Relief on pension contributions offers an effective tax break to all retirement savers. However, tax relief costs the government around £35 billion a year and there is scant evidence to show it acts as a carrot to the lowest earners.
More pension meddling
“With the advent of auto-enrolment pensions, increasing tax relief for these people could give even more of a reason for them to save for their retirement.”
Other pension experts are not so convinced that the PPI report makes sense for the lowest paid retirement savers.
Tom McPhail, head of pension research at financial firm Hargreaves Lansdown, said: “Most people decide about how much to save for a pension by what they can afford to put aside each month rather than how much tax relief they may gain. Making even more pension changes after all those over recent years would probably confuse people even more.”