In October, UK’s Department for Work and Pensions (DWP) said it was looking to overhaul the current advice safeguard amid complaints it “financially disadvantages” around 700,000 UK expats who want to move their pensions abroad into an overseas scheme at some point in the future.
Under the requirement, individuals, including expats living outside the UK, must take financial advice from a Financial Conduct Authority (FCA)-regulated adviser for all transfers out of final salary or guaranteed annuity rate (GARS) pension schemes for pots over £30,000 ($39,631, €35,126).
This means that UK citizens based permanently overseas have to consult two sets of advisers, one in the UK and a local adviser, which DWP agrees increases the cost of seeking advice.
New proposals
As a result, DWP proposed either completely scrapping the requirement, changing it so that Britons abroad can use a ‘local’ financial adviser rather than one who is FCA regulated. In addition, the department said it is considering plans to allow people who cannot access advice locally to use an adviser based in a third country.
An industry consultation into the move closes on 23 December.
Using local advisers
David White, partner at Isle of Man-based The Qrops Bureau, which has been in contact with DWP over the proposals, said the safeguard should not be removed completely but instead should allow for people to use local advisers.
“There are many regulated, well qualified and experienced advisers outside the UK who would be perfectly capable of giving this advice. It seems far too black and white to say that only a UK FCA-regulated adviser can give suitable advice,” he told International Adviser.
However, White believes a comprehensive set of regulatory guidelines on the overseas transfers of defined benefit pensions is needed to police both UK and non-UK financial advisers.
“The QROPS Bureau’s view is that members of defined benefit schemes absolutely do need to take appropriate advice and that the safeguard should not be removed completely.
“The input we will be giving to the consultation is that there should be some benchmarks in terms of regulation, qualification and experience which have to be passed before an adviser is permitted to advise on a transfer out of a defined benefit scheme.
“Within these benchmarks, non-UK advisers should be permitted to give advice on transfer out of defined benefit schemes when appropriate,” he said.
Cross-border clashes
He added that safeguard is currently at odds with regulation in other jurisdictions, which may unfairly put off savers from using a Rops even when it is appropriate.
“An expatriate may find it difficult to source advice from a UK FCA regulated adviser and may not proceed with considering a transfer because of these practical difficulties, rather than for the right reasons.
“Singapore is a good example of where there could be further problems. A Singapore resident who wishes to consider transferring out of a UK defined benefit pension scheme would not be able to do so without advice from a UK FCA regulated adviser.
“However under Singapore legislation the UK adviser would not be able to advise the Singapore resident without being regulated in Singapore,” said Davies.
Consumer proctection gap
Stewart Davies, group chief executive of specialist pensions provider Momentum Pensions, which has officers in Malta, Gibraltar and the Isle of Man, said the industry is divided on changes to the advice safeguard, arguing that it may create a “consumer protection gap”.
On proposals allowing the use of local advisers, Davies said “it is hard to regulate advisers operating in jurisdictions outside the UK. As a result, the UK government’s proposals have had a few teething problems.”
Gerry Kelly, chief operating officer of Sovereign Group, an international pension provider with offices in Malta, Gibraltar, Isle of Man and Guernsey, disputes whether the advice safeguard is in the best interests of consumers.
