Mis-selling warning for advisers on overseas pension transfers

A mis-selling scandal is brewing for advisers on overseas pension transfers, according to an expert in QROPS (Qualifying Recognised Overseas Pension Schemes).

Geraint Davies, who helped HMRC on the A-Day launch of QROPS, believes only a handful of advisers have enough experience to advise on these highly complex products which require knowledge of both the UK tax system and the jurisdiction where benefits will be received.

He believes advisers are in a no win situation: “To treat customers fairly, advisers have to consider QROPS as a retirement planning vehicle each and every time they conduct a retirement planning consultation or client review.

“With more and more clients expressing an interest in living, now or in the future, outside the UK – no adviser can ignore asking about future residency intentions in their factfinding.

“Advisers simply cannot have knowledge of the retirement, the residency, the social security and the taxation rules of each and every country where their clients could contemplate moving to. They are going to need to specialize, find a specialist or risk the wrath of the regulator by failing to treat their customer fairly.”

He also warns UK advisers and consumers are being targeted by an increasing number of unregulated companies, many from overseas, who want a slice of the lucrative transfer market.

Davies, managing director of FSA-regulated consultancy Montfort International plc, says frequently these advice firms offer little company information and often lack real understanding of the UK pensions marketplace.

However, they are openly giving advice to UK residents on UK shores, often at property and migration shows.

He has written to the FSA asking for them to issue a warning to advisers on the implications of not giving the right advice on overseas pensions and to take action on unregulated advisers.

Davies says: “There is a need to protect the unsuspecting British public, we are hearing of some real horror stories.

“There is a mis-selling scandal waiting to happen here on QROPS. We want the FSA to send out warnings to advisers that the wrong pensions transfer advice could create a scandal for them even 6-8 years down the line.

“Consumers also need to be warned about the increase in unregulated adviser firms from overseas who are coming over and giving advice on QROPS.”

AXA Wealth Management head of development Mark Wilkinson, agrees the complexity and increased demand for the products could cause problems.

A recent BBC survey found the number of Brits retiring abroad is increasing rapidly and could be as high as 1.8 million by 2025 and 3.3 million by 2050.

Wilkinson comments: “QROPS are not that new and have been around for the last couple of years but they have been planted in the general consciousness over the last six months or so. There is an element of band-wagon jumping here. People hear there is a pension vehicle where the UK pensions rules don’t apply and this could lead to a planning grey area here.”

The FSA says it has not released a statement on QROPS yet and has no plans to publish in the future.

However, a spokesman for the regulator says: “If an adviser in the UK is advising on the transfer of a UK registered pension overseas, they should be able to advise the client of the potential tax implications and be competent to do this.”

In response, Davies comments: “You simply cannot limit the QROPS issue to potential tax implications, to do so is asking for trouble. Our advice team includes registered migration agents, international tax and legal specialists as well as UK regulated pension transfer specialists. We wouldn’t even dare give advice on QROPS without this support team.

“In Australia your visa affects your tax and your visa status can change. I wonder if the FSA have factored this fundamental in – or will they do so when it’s too late. I thought we were supposed to be practicing TCF.”

QROPS were set up to make the process easier for individuals moving abroad to transfer their UK pensions. The main attractions of QROPs over a UK scheme are the flexibility in taking benefits from the fund as many jurisdictions do not require income to be paid to members. There is also more flexibility on widow and dependant benefits.

However, there are pitfalls with the scheme as HMRC legislation has to be strictly followed by the QROPS and the member. If these rules are not followed, heavy UK tax charges could be incurred.

A QROPS must be registered with the HMRC and agree to report payments made from the scheme to the member for the first five complete UK tax years of the member’s overseas residency.

Some schemes in Singapore have already lost their HMRC approval as they did not followed these rules and HMRC is keen to show it will not allow the regime to be abused.