State pensioners lose £268,275 each after Labour closes down loophole

State pensioners are lose savings after the Labour Party government shut a loophole. Changes in the Labour Party Budget mean retirees can no longer take two separate cash lump sums from their nest eggs free of tax or a charge.

After the lifetime allowance (LTA) – a limit on the amount people can save into a pension without attracting a tax charge – was scrapped in April, a loophole allowed people to leave £1,073,100 in their UK pension and transfer anything above this figure into a qualifying overseas scheme.

This allowed them to take a quarter of their pot – £268,275 – tax-free from their UK scheme, as well as a second tax-free cash entitlement from their overseas scheme. Rachel Vahey, head of public policy at AJ Bell, said the closure of the loophole has caused “chaos” for overseas retirees.

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Speaking to the i, she said: “HMRC has removed the exclusion that the overseas transfer charge will not apply if someone transfers to a qualifying recognised overseas pension scheme (QROPS) in the European economic area or Gibraltar, even though they were not resident in the same country.

“One consequence is those who want to retire overseas, but where there are no QROPS registered in their new country of residence, will be forced to keep their pension scheme in the UK or face a 25 percent charge on transfer.

“As overseas residents may struggle to hold a UK bank account, and many UK pension schemes won’t pay to non-UK bank accounts, this could leave these overseas retirees in a difficult position. Even where they can hold an account, they still face a harsh choice whether to juggle currency risks when taking pension income or lose 25 per cent of their pension wealth on transfer.”