In the pre Budget Report, changes were announced (on 9th December 2009) to the tax that is charged when an individual leaves an occupational pension scheme within 2 years of joining and takes a refund of their contributions.
Global QROPS Ltd will explain the impact to UK occupational pension scheme members in this position and if there is any QROPS advice that may be affected by this.
What is a Short Service Refund?
Lump sums paid to members who leave an occupational pension schemes within 2 years of joining (known as short service refund lump sums), are permitted by the UK’s HMRC (Her Majesty’s Revenue and Customs) in order to ease the administrative burden for a scheme and reduce the cost of providing an extremely small pension for life for a member.
The pre Budget Report declared that changes are being made to take into consideration the new 50% upper rate of income tax – coming into force from April 2011.
Short service refund lump sums, made on or after 6 April 2010, will now be taxed at a rate of 20% on the first £20,000 of the refund and 50% on the remainder. (Previously this was 20% on the first £10,800 and 40% on the amount above this).
For potential migrants, taking QROPS advice, there may be little option but to take the refund. Occupational scheme administrators will not always provide a transfer value for members with less than 2 years membership and therefore a transfer to QROPS may not be an option.
