A leading pensions administrator is calling for pension holders who shift their pensions overseas purely for tax gains to pay more for the privilege as it warns the trend is placing an unnecessary burden on UK taxpayers.

Trafalgar House says that administering the burgeoning overseas transfer system is an “unnecessary” cost for the government and pensions sector and that members seeking to move their money overseas simply for financial gain should face the “tax implications” of the decision.

The company has called on the government to tackle the issue to stop people avoiding their tax liability and also to crack down on pension scams which often involve transferring pensions overseas. It says a 55% charge on the pot will deter money from making the move purely to dodge tax.

Alan Berry, service delivery manager at Trafalgar House, said the UK pension sector’s long term “paternal” approach to transfers – voluntarily maintaining a costly and complicated registration process for overseas schemes to ensure the safe passage of member funds abroad - needs to be reviewed urgently.

He said: “In our experience, despite the number of requests very few people move their permanent residence to Malta or the other popular destinations – it is simply the lure of a better tax deal that is driving these transfers. In difficult economic times, it is odd that the UK should continue to bear the cost of losing investment and tax revenue.

“The tax relief given to members on their contributions should be dependent on the money remaining in the UK to help fund a retirement that makes the member less dependent on the state in their old age. If the member thinks they can get a better deal elsewhere, that’s fine – but they should forfeit this UK-specific benefit and pay the tax relief back on the transfer.”

Mr Berry added: “Pensioners who move overseas seem willing to accept that their UK pension will be subject to an exchange rate cost, seeing this as part of their overall decision to move abroad – so those looking for tax breaks before they retire should accept similar consequences.

“Telling a member their pot will lose 55% simply by transferring abroad will undoubtedly stop many scams in their tracks and also deter a lot of people looking to avoid their tax liability. For a government looking to cut costs and secure all the tax revenue they can, this seems like a piece of very low-hanging fruit to pick.”