The controversial QROPS overseas transfer charge has proved to be a flop as a money raiser for the tax man.
Only £1.4 million was paid from 30 transfers to HM revenue & Customs under the rule by expat retirement savers switching their offshore pensions in the 2017-18 tax year.
HMRC had forecast the charge would raise £65 million.
Fear of the charge and a lack of understanding how HMRC applied the rule has seen a 52% drop in the number of QROPS transfers between 2017-18 and the year before.
Expats moved 4,700 pensions worth £740 million to QROPS in the last tax year – down from 9,700 valued at £1.22 billion in 2016-17.
QROPS were introduced in April 2006 and peaked in popularity in 2014-15 when 20,100 pension transfers worth £1.76 billion went ahead.
The data comes from a freedom of information request made by financial firm Canada Life.
Andrew Tully, the firm’s pensions technical director, said: “Going by the low number of transfers where a charge has been applied, it would appear many people have had second thoughts about moving their pension overseas.
“The pension freedoms may also have had an impact on the general decline in the number of transfers to QROPS as there is much greater flexibility in how people can access their benefits in the UK.
“Although the number of transfers attracting a charge is very small, and the resulting tax raised very low compared to the government’s own assumptions, HM Treasury will be pleased another tax loophole has effectively been closed and further tax leakage prevented.”
The transfer charge applies if the retirement saver lives outside of the European Economic Area (EEA) and moves pension cash into a QROPS based in a different country from where they live.
Brexit is seen as another issue that could impact QROPS transfers. Uncertainty about if QROPS would continue to offer tax breaks to expats may be delaying retirement savers from switching their pension funds offshore.
It seems the government is unsure about the future of QROPS as well. Economic Secretary to the Treasury John Glen has commented that the tax status of QROPS transfers depends on the Brexit deal.