The Treasury announced it would impose a 25% tax charge on pension transfers to QROPS pension schemes from the day after the Budget (9 March).
Officials said the charge was “targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction”.
But Philip Hammond has been accused of “letting pension scammers off the hook by targeting legitimate firms with bona fide, compliant products” by a pensions campaign group.
Angela Brooks, chair of Pension Life, said: “Hammond has already done one screeching Budget U-turn. He should now do another on his wholly ill-conceived and utterly misguided thinking on QROPS.
“What does slapping a 25 per cent tax on QROPS transfers achieve? Primarily it disadvantages many genuine pension savers who are using bona fide, regulated advisers and who want to benefit from the advantages that transferring their UK pensions out of Britain can offer.
“What doesn’t it achieve? Stopping any of the current scammers using QROPS as the vehicle for their scams.”
Ms Brooks said: “The uncertainty over an individual's possible future domicile outside the EEA - triggering the 25 per cent tax charge - has put a large question mark over pension and tax planning for many people.”
She said: “The QROPS tax seems designed to collect a large basket full of low-hanging-fruit tax, but without addressing the ills of some within the offshore pension industry: namely, the armies of firms operating without regulation and the large number of trustees accepting business from them without due diligence. Hammond is also ignoring the scourge of the many toxic UCIS funds being promoted to UK residents illegally, and partnered with QROPS.”
The group wants the Chancellor to work with regulators, ombudsmen and financial crime units in popular QROPS destinations to clean up the offshore industry in the interests of British expats.
Nigel Green, founder and CEO of deVere Group, was also critical, saying soon after the Budget: “It is extremely disappointing that the government sees Britons’ pensions as low hanging fruit they can raid whenever they deem it appropriate. It seems to forget that it is an individual’s right to transfer their asset to any jurisdiction they see fit and, as such, people should not be penalised should they choose to move it outside the UK for legitimate financial planning reasons."
The Treasury said exceptions would apply to the charge allowing transfers to be made tax-free where people “have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area”.
The Treasury made the following points in response to the campaign group's statement:
"The number and scale of overseas pension transfers has increased significantly over the past ten years, becoming an industry with around £1.5bn of transfers in 2015-16. In the past decade, use of QROPS (qualifying recognised overseas pension schemes) has more than trebled.
"Over 50% of transfers to foreign schemes were to countries where individuals making the transfer were not resident.
"This type of arrangement can allow individuals to unfairly avoid tax on their pension in retirement. We expect a charge of 25% to be a sufficient deterrent to this behaviour.
"No charges will be payable if the individual chooses to keep their funds in the UK."