Overseas pension transfers and the advice requirement – Sackers’ response to DWP call for evidence
The DWP has issued a call for evidence on the way the “advice requirement” applies to members with safeguarded pension benefits who wish to transfer those benefits outside the UK.
In this response
- General comments
- Scale of transfers to overseas pension schemes
- The proposed options
- Leaving the advice requirement unchanged
- Removing the advice requirement
- Equivalent advice
The main focus of the call for evidence is on pension transfers by members who are currently overseas or who are planning to move overseas. However, in our experience, transfers to overseas arrangements are commonly used by UK residents who have no intention of moving overseas. This may be because an individual is seeking more efficient tax treatment for their retirement savings, or because some form of scam is involved.
In our view, it is this bigger picture in relation to the use of overseas schemes as investment vehicles for retirement savings which needs to be addressed as part of the Government’s strategy to clamp down on pension scams.
We do not administer pension schemes and are therefore not in a position to comment on the overall volume of transfers overseas, or the proportion of transfer enquiries which relate to overseas arrangements. However, our experience is that we get called upon where there are uncertainties concerning individual transfer requests and, in relation to such queries, we are seeing an increasing number where the proposed receiving scheme is based overseas.
The call for evidence sets out three different options:
- leaving the appropriate independent advice requirement unchanged
- removing the advice requirement entirely
- permitting overseas members to seek equivalent advice in their country of residence and introducing a way for trustees / administrators to check that the member has genuinely received advice from an authorised provider in their own country.
In our experience, the existing advice requirement causes complications for those wishing to transfer their benefits overseas.
Currently, the independent advice regulations require the advice given to be “specific to the type of relevant transaction proposed by the member or survivor”.
In practice, where overseas transfers are concerned, some advisers have refused to provide advice because they are unable to fully assess the likely benefits in the proposed receiving scheme. In other cases, advisers have made it clear that their advice relates only to the UK element, in other words, that they are providing an overview of the member’s current benefits, but not advising on the possible impact of the transfer of those benefits to the overseas arrangement.
In effect, owing to a lack of prescription in the advice regulations as to what information and advice must be obtained, the latter approach reduces an adviser’s checks to a “tick box” exercise. Neither approach provides advice which offers suitable protection for members.
In our view therefore, leaving the advice requirement unchanged would continue to leave members open to the risks associated with transfers overseas, in particular, the risk of being caught up in scams.
Removal of the advice requirement would make it simpler for members to effect transfers overseas where, for example, there is a genuine attempt to consolidate benefits pursuant to a move abroad.
For trustees, no longer having to check that a member has received the requisite advice could also mean that things are administratively simpler. That said, trustees wishing to protect members may seek to fill the void by introducing their own checks or advice requirements, ultimately leaving themselves open to greater risk of claims in the event that things go wrong.
In our view, removing the advice requirement would increase the risk for members of transferring their benefits to an arrangement which is unsuitable (for example, because of the risk profile of the arrangement), or a scam. In our experience, schemes that are marketed as QROPS increasingly bear the hallmarks of arrangements that are either a scam, or arrangements that are unsuitable for the majority of retirement savers because, for example, of their risk profile. As such, we consider that the level of protection for members should, if anything, be higher where an overseas transfer is contemplated.
A requirement for a member to obtain equivalent advice in their country of residence has the potential to provide better protection for members.
However, whilst individuals can find a UK qualified adviser relatively easily, for example through https://www.unbiased.co.uk/, there is currently little assistance for those needing to find an overseas adviser with the necessary expertise to advise on the local implications of a transfer. Thought needs to be given as to how individuals can find an appropriately qualified overseas financial adviser, in particular one who is independent and not connected with the proposed receiving scheme.
In addition, whilst the equivalent expertise of an overseas adviser and the quality of advice obtained overseas could be relatively easy to verify in some jurisdictions, this may not be the case everywhere.
As noted above, the wording of the regulations has led some to treat the advice requirement as a box ticking exercise. If the intention is to ensure that anyone transferring safeguarded benefits is on a level playing field in terms of the advice they receive, an alternative could be to make the advice regulations more prescriptive in terms of the information the financial adviser must provide. Such an approach could help members compare more easily the benefits they are giving up with those they can expect to receive in the proposed overseas receiving scheme.
Where advice is obtained from an overseas jurisdiction (whether this is the member’s country of residence or a third country), it will be necessary for the individual to have a direct contractual link with the adviser to ensure they have direct recourse against him/her in the event of any problems arising as a result of the advice and/or any subsequent transfer. In our experience, this is not always the case where an overseas provider has been recommended by an adviser or provider in the UK.
Whilst trustees have fiduciary responsibilities in relation to members of their scheme, it is ultimately the member’s decision whether or not to transfer their benefits overseas. As such, any new requirements should avoid overburdening trustees in terms of the checks they need to carry out.