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An English plan abroad

We have recently employed a foreign national within our company and I know he is eligible to join our group personal pension and benefit from the employer contribution that we make. However, our employee does not see working in the UK as permanent and will wish to return home at some time in the future. I believe he could transfer the GPP benefits abroad but I and my employee would like to know more about how this would work in practice.

It used to be the case that any application to transfer UK pension rights to an overseas scheme required the consent of the Pension Schemes Office. However, PSO Update 82 announced changes to this procedure with the intention of making the process simpler and moving the responsibility to the ceding scheme in terms of ensuring that the conditions specified by the PSO are met.

The PSO wants to facilitate transfers to appropriate overseas schemes for people moving abroad permanently but it understandably wants to prevent any abuse of the system. The amendments to the system of overseas transfers took effect from April 6, 2001.

Appendix 22 of IR76 (2000) sets out the criteria that must be met for transfers to take place without prior approval of the PSO. It does not cover the transfer of contracted-out rights, which still require the approval of the National Insurance Contributions Office, so I am assuming that the only contributions made will be employee and/or employer contributions.

It is conditional that no benefits have come into payment from the pension plan and that the fund will be paid “directly from the scheme administrator of the personal pension scheme to the administrator/trustees (or the equivalent) of the overseas scheme”. If these conditions are not met, no transfer can take place even by seeking PSO approval. Indeed, it is stated that “no transfer application should be submitted to the PSO” if this is the case.

Those who have been controlling directors within 10 years of requesting the transfer or high earners within six years of making the request will require PSO approval. Controlling directors are defined as those controlling 20 per cent or more of the ordinary share capital, either singly or with associates, directly or indirectly. High earners are defined as having net relevant earnings in any of the six years prior to the request exceeding the allowable maximum for the year of assessment in which the transfer payment is requested, that is, £97,200 for 2002/03.

Assuming that neither of these applies to your employee, then, as long as the following criteria can be satisfied, a transfer can be made:

•The employee must have left the UK on a permanent basis with no intention of returning at a later date to work or retire. This will need to be confirmed by the individual in writing.

•He must be in employment or self-employment at home. A letter from his new employer will be required or a copy contract or invoice if self-employed.

•UK employment must be totally severed and he must not “exercise any self-employment in the UK”. Written confirmation from the individual will be required together with the P45 from his former UK employer.

•Both the employee and his new scheme must be resident and established in the same overseas country. This will need to be confirmed in writing by him and the scheme to which he wishes to transfer.

•The scheme to which he wishes to transfer must be authorised by the appropriate body. Confirmation will be required from the authorising body.

•The scheme must be capable and willing to accept the transfer payment. Written confirmation is needed from the receiving scheme.

Given that the onus has moved from the PSO to the provider in conducting and checking the transfer, this has cost implications for the pension company. It would be prudent to check whether any costs would be levied by the provider for its services.

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