In a statement released on its website, STM said the new tax announced by chancellor Philip Hammond in the Spring Budget on Wednesday affects 80% of new business in qualifying overseas pensions schemes (Qrops) from outside the European Economic Area (EEA).
“This change is likely to have an impact on STM's ability to grow the number of Qrop policies it administers.
“We currently anticipate that the proposed change in tax legislation will not impact all of our new Qrops new business generation.
“In particular, we believe that there should not be an impact on new Qrops applications business from EEA countries, which accounts for circa 20% of new Qrops business. The other 80% of new Qrops business is generated from outside of the EEA and could therefore be affected by this new charge,” the company said.
Shares in STM tumbled more than 20% on Thursday as the company digested what has been described as a significant blow to the overseas pensions industry.
The 25% charge affects those requesting an overseas pension transfer on or after 9 March 2017.
The chancellor said the move is designed to crack down on individuals who try to avoid taxes by moving their pensions outside the European Economic Area (EEA).
Exemptions apply to people who have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area (EEA).
Sipps more attractive
STM said it has other revenue streams, namely from the life assurance businesses as well as the corporate and trustee service provider business, which will not be affected by the proposed changes to Qrops tax legislation. These divisions represent approximately 50% of STM's 2016 revenues.
The company said it has spoken to intermediaries, who have advised that in “certain cases, and for certain countries, their clients may still look to transfer their pension to a Qrops policy despite this charge”.
“Intermediaries will be carrying out extensive research over the coming weeks to analyse the impact of the proposed new tax charge further,” said the product provider.
STM, which bought a UK Sipp business from London & Colonial last September, added that it expects advisers to recommend self-invested personal pension (Sipps), given that “Qrops might not be such an attractive proposition for their clients”.
“We therefore hope that an increase in new applications for our UK SIPP business may mitigate some of the impact of the new tax legislation on our ability to win new Qrops policies,” said STM.