The most recent discussions arose out of a more general dialogue, largely within the private confines of members-only groups on Linkedin over the past 10 days, about how unregulated advisers in Europe might be brought into the regulatory fold.
The discussions also come at a time of growing industry concern about the alleged abuse by some providers and advisers of the 2006 legislation that has enabled people to move their UK pensions overseas into qualifying recognised overseas pension schemes (QROPS).
In particular, it is claimed that some companies are helping pension scheme members to extract cash from their UK pensions through various methods once they are offshore, as well as overcharging them for the transfers, and for the schemes’ ongoing administration.
Some unscrupulous advisers are also said to be recommending pension transfers that are not in their client’s best interests – for example, when a pension is too small to justify the fees involved.
Tim Webb is a UK-based pension industry expert and trained actuary who kicked off the discussion about an international QROPS code of conduct last week, in a posting on a LinkedIn QROPS group discussion board.
In his posting, Webb asked his industry colleagues whether they agreed with him that a QROPS code of conduct, to be adhered to by advisers and respected by pension providers and administrators, made sense.
Webb argued that the industry should “[channel] our energies into drafting [a QROPS code of conduct], and [encourage] voluntary adoption by publication of it, and circulation of it to UK registered pension schemes and QROPS providers and the media”.
This, he said, could help to “protect naive individuals from…ill-informed or unscrupulous providers or advisers”.
Those in the industry who shared his view, Webb wrote, should “sign up” to the new "QROPS Code of Practice" group he had created on Linkedin.
In a subsequent interview with International Adviser, Webb said he thought that in the beginning, at least, Linkedin was probably the best place for the debate to take place, given the international pension advisory industry’s cross-border, time zone-spanning nature.
“Anyone can sign up there, as it is open to anyone, and quite a few people have already expressed an interest,” he said. “Hopefully more will join us soon.
“It won’t happen overnight, but if we don’t start somewhere, it won’t ever happen at all.”
Not a new idea
As Webb and others are quick to point out, the idea of a QROPS code of conduct is hardly new.
However, both of these were aimed at pension scheme providers. Much of the current discussion is focussing on a code that would be signed up to by those who advise clients on transferring their UK pensions overseas – whether the advisers are located in the UK, or offshore.
This is seen as key, since advisers located outside of the UK are not subject to UK regulation, and thus difficult for HMRC to monitor or control. That said, even in the UK, the provision of QROPS advice is not a regulated activity, Webb noted, in spite of some requests in the past, by industry members to the government, for it to be.
Malta, meanwhile, established detailed legislation governing the way QROPS are to be handled by the growing number of QROP scheme providers that have set up there since 2009, when HMRC first recognised the Mediterranean island as a jurisdiction to which such schemes could be moved.
Like the Guernsey and Gibraltar codes of conduct, Malta’s legislation is aimed at the QROP scheme providers, rather than at the advisers. But unlike them, it provides for real consequences, should a scheme provider decide not to abide by the detailed rules that have been set.
UK code of conduct precedent
According to Webb, there is another precedent – in the UK pensions industry – for a QROPS code of conduct.
What’s more, he contends that this precedent may be even more relevant than the Guernsey and Gibraltar codes, because it was put together in part by advisers, who are also the ones who are expected to abide by it.
This UK code, known as the Incentive Exercises for Pensions Code of Practice, came into force last year after four years of intra-industry discussion, in association with UK government officials. And although it is only about a year old, this entirely voluntary scheme seems to be working, Webb said.
This is because pension fund trustees have learned to “see whether the adviser in question has signed up to it, and if they haven’t, they know to look more closely, and ask questions”, he noted.
‘Advising rather than selling’
Webb sees the issue of a QROPS code of conduct as boiling down to “defining and agreeing a consensus view as to what constitutes a good standard for advisers who advise on QROPS, and then getting people to sign up to sticking to it”.
“As a rule, QROPS are sold rather than bought,” he explained.
“This [the effort to create a code of conduct] is about trying to make sure that clients are getting full and honest advice from their advisers, and are not just being sold a product.”
Code ‘not the answer’
Not everyone in the QROPS business believes that a code of conduct is the solution.
One pension fund administrator echoed the comments of some others in observing that codes of conduct often fail because the entities that most need to comply with them are also the ones least likely to – even though they typically claim to be abiding by them.
“They [codes of conduct] are better than nothing at all, but not by much,” this pension fund administrator added. “Because do you know what happens when companies ignore a code of conduct? Quite often, nothing.
“Codes of conduct tend to be introduced whenever there ought to be legislation, but there isn’t any.”
Bethell Codrington, global head of international pensions at the TMF Group, another major QROP scheme provider, said he was “emphatically” in favour of any effort to clean up the business, but noted that codes of conduct can sometimes end up providing “ a veneer or respectability for the unscrupulous”.
And then there’s the question as to “who is going to be the policeman”, he added.
“If you don’t have a policeman, the abuses will continue.
“A code of conduct is a great idea, as long as it’s enforceable and someone is actually going to oversee it, and see to it that any firm or individual who breaches it are publicly thrown out.”
Codrington, whose company has a QROP scheme administered out of Malta, said he believes the Maltese approach is the best, at least for ensuring QROP providers play by the rules, because “not only is the regulatory status enshrined in law, but it also requires every pension fund to be independently audited every year, with the audit going to the regulator”.
HM Revenue & Customs, which oversees the administration of QROPS, could “require QROP scheme providers to submit their audit results annually in order to obtain a QROPS reference number and to be included and remain on the providers’ list”, Codrington added.
“If every QROPS were fully, independently audited, and the audit were sent to HMRC, it would give the Revenue the opportunity to vet and shut down schemes that are doing things that they [HMRC] don’t want them to do.”
Administering this system would be expensive, but it could be paid for if providers paid an annual fee, again as part of their annual application to be on the QROPS’ providers list.
“At the moment, as far as I’m aware, Malta is the only jurisdiction which currently requires pension schemes to be audited and for these audits to be provided to the regulator,” Codrington said.
That said, if you wait for the regulators to step in, you could be waiting a very long time, and they may still not get it right in the end, others say.
One of them is Roger Berry, managing director of the Concept Group, which was one of Guernsey’s largest QROPS providers until HMRC all but destroyed the island’s QROPS industry on 12 April 2012. That was when HMRC unexpectedly changed the regulations governing the way such schemes are treated, and in the process removed some310 out of 313 Guernsey QROPS from its list.
According to Berry, who had been chairman of the Guernsey Association of Pension Providers committee that implemented Guernsey’s QROPS code of conduct in 2011, that code might never have happened if the industry had waited for it to be put into place by statute.
Not only would it have taken longer, but it might also not have been as useful, since governments don’t always understand what is needed as well as the product providers, “who are at the coalface, and know what the issues are”, he said.
“It may have been voluntary, but it gave the members and the advisers a framework that told them how things were supposed to be handled, and how their clients should be treated,” Berry went on.
“There were some critics, of course, but on balance it was very well received by the industry, and the companies that signed up to it were expected to follow the code.”
Key features of Malta’s rules and regulations* which govern QROPS
1. Beneficiaries [ie, pension scheme members/clients] receiving retirement benefits through a QROP scheme held in Malta are required to register for Maltese income tax purposes and to submit an annual tax return. This return must also include “details of any tax withheld at source on the distribution”, unless distributed free of withholding tax, due to the provisions of a double-tax treaty. In such cases, “the details of the treaty benefits being claimed would need to be provided, together with evidence of the tax residence of the recipient”
2. Under Malta’s pension scheme regulations, the administrator/trustee of each QROP scheme is required to provide the Malta Financial Services Authority with a full independent audit each year, within three months of the end of the year. In addition to covering the scheme’s finances, the audit also must include a statement which addresses the scheme’s compliance
* Pensions regulations – see http://www.mfsa.com.mt/pages/viewcontent.aspx?id=229