In August, John Batty of Isle of Man-based Boal & Co, an actuarial consultancy firm specialising in international pension schemes, told International Adviser that the advice requirement was dampening sales of recognised overseas pension (Rops).
In a consultation paper published on Friday, the DWP has now said the rule, introduced with the pension freedoms in April 2015, may “financially disadvantage” around 700,000 UK expats who wish to move their pensions abroad into an overseas scheme at some point in the future.
Under the requirement, individuals, including those living outside the UK, must take financial advice from an Financial Conduct Authority (FCA)-regulated adviser for all transfers out of final salary or guaranteed annuity rates (GARS) pension schemes for pots over £30,000 ($39,631, €35,126).
“The result is that members resident overseas with safeguarded pension benefits may be financially disadvantaged by having to seek two separate sets of advice, one to meet the conditions of the new advice safeguard requirement and another from a local overseas adviser to advise on issues relating to the transfer overseas, such as tax implications or timing of the transfer to minimise the impact of currency fluctuations,” wrote the DWP.
"Why would anyone suggest that the scammers and commission hiding cowboys and con artists be given even more freedom to flog useless pension solutions.”
The UK government is now consulting on whether to keep rule as it is, scrap it altogether or allow British expats to use locally-authorised financial advisers instead of UK-regulated advisers.
Removing the requirement
Removing the rule for expats would mean restoring the pre-April 2015 transfer process, said the government, which often involved individuals using a specialist adviser in an overseas jurisdiction to carry out the transfer.
However, the DWP said it was concerned that scrapping the requirement would increase the risk of people making an “unsuitable transfer”, arguing it would have to introduce a residency test to ensure UK residents could not circumvent the rule to avoid paying for an FCA-authorised adviser.
Using overseas advisers
Instead of abolishing the rule, the DWP said it could look to allow Britons abroad to use a ‘local’ financial adviser instead – registered and authorised in their country of residence.
Describing the proposal as “logistically easier and more cost-effective”, the government believes it will remove the need for expats to consult an FCA-regulated adviser in the UK in addition to a local adviser.
“The assumption is that a local financial adviser would have more expertise as to the applicable regulatory rules, tax implications and investment options available.
“The member would then also be able to transfer their pension using only one financial adviser, in the location where they reside,” said the department.
Minimum advice standards
However, concerns have been raised about the standard of advice that consumers will recieve from so-called local advisers.
Last month, Andrea Speed, head of Spanish IFA firm Speed Financial Solutions, told IA that clients receiving poor advice from inadequately qualified financial advisers has made some parts of Europe like working in the ‘wild west’.
In a bid to ensure individuals receive “high quality advice” and protection, the DWP has proposed creating a set of recognised minimum standards which advisers abroad must meet before they can advise on overseas pension transfers.
“A possible option is therefore to create or identify a recognised set of minimum standards by which advisers could demonstrate they have obtained the relevant qualifications to become a pension transfer specialist,” it said.