Independent advisers may be sitting on a mis-selling “timebomb” by not advising on qualifying recognised overseas pension schemes, as the regulator confirmed that IFAs must consider any such products that fall under the definition of retail investment products.
The Financial Services Authority has confirmed to FTAdviser that some Qrops may fall under the Retail Distribution Review definition of retail investment products - and that where they do IFAs would have to consider them for clients.
According to Geraint Davies, managing director of global financial planning firm Montfort International, up to a fifth of the population may be “prime candidates” for Qrops, which are not solely limited to expats that have emigrated out of the UK.
In an interview with FTAdviser, Mr Davies said clients potentially suitable for a Qrops included anyone holding more than one passport, who is a non-UK national, who thinks they might move to another country or at least not retire in the UK, or who is married to a non-UK national.
According to the HM Revenue & Customs, a Qrops is a pension scheme established outside the UK that is broadly similar to a UK registered pension scheme but is treated as a recognised overseas pension scheme.
Confirming which Qrops fall under the RDR could prove challenging for inexperienced advisers, while they must also consider the possibility that HMRC removes the Qrops from its approved list.
Last year, law firm Dorsey and Whitney launched a legal action against HMRC on behalf of more than 120 investors in a Singapore pension scheme, after they were hit with a 55 per cent retrospective tax charge following the scheme’s removal from the HMRC approved list.
Mr Davies said: “Advisers need to consider Qrops and discount it with proper reasoning. If you ask advisers if they are considering Qrops they may say that it is not a legitimate product, but it is.”
Mr Davies believes advisers’ lack of awareness of Qrops is a “massive issue”, but he warned that advice to transfer requires knowledge not only of the financial planning issues but tax consequences of the UK and the country of residence, visa implications and social security issues.
He said: “It takes a very astute advisor with bags of experience to say which scheme should go to a Qrops and which should not and where and when. I think it’s a timebomb that is so easily solved by delving into people’s personal circumstances.”
Mr Davies added: “It’s high time the regulators announce what is expected of advisors when it comes to Qrops oversight else they are going to be seen as reactive to a tragedy.”
A spokesperson for the FSA said: “Depending on how they are structured some [Qrops] may fall under the definition of a retail investment product and those that do will have to be looked at to remain independent.”
