Pension transfers out of a UK scheme to that of another country could face additional risks after qualifying recognised overseas pension schemes (Qrops) were left off the government consultation list of statutory transfer destinations.
The government consultation aims to examine ways the industry can help protect against pension scams, but has left overseas transfers off the agenda.
The proposed blanket legislation would not give individuals an automatic right to transfer their pension to a different country should they wish to retire overseas.
Ian Neale, director at Aries Insight, said overseas transfers can represent a concerning area for scams, but there are also legitimate transfers abroad that should not be restricted by blanket legislation.
“The issue is that if a member with a statutory right to transfer their pension can no longer exercise this by transferring to a Qrops [which is a consequence of the current proposed restriction], only where transferring scheme trustees are willing to grant a transfer via discretionary powers can the member attain their objective.”
Mr Neale added it will be easier for trustees to decide a policy that restricts transfers.
While there are costs involved with any transfer request, the costs of ensuring the additional checks and due diligence required for an overseas transfer are much higher.
“There is a tendency at the moment to favour a knee-jerk reaction to an irritating problem, by simply banning all activity, legitimate as well as illegitimate.
"Narrowing choice does make life easier, but in this instance it is contrary to the government’s policy to encourage pension saving,” Mr Neale said.
The Qrops system was established to enable individuals who have saved into a pension while working in the UK to transfer their savings overseas should they desire to live in a different country during retirement.
Geraint Davies, managing director at advice firm Montfort International, said not including Qrops in the consultation compounds two other existing issues concerning UK advisers and overseas advisers.
Problems can arise when UK advisers do not have a full understanding of the local pension rules of the country that their clients are looking to move in retirement, which can lead to insufficient or inaccurate advice given to consumers.
“The problem with UK advisers is that they are dismissing the idea of Qrops straight away in many cases without even considering them to be of value, so that becomes an FCA issue.
"There’s enough powers at the FCA to make sure that UK advisers look at them properly,” Mr Davies said.
Consumers could instead go to an overseas adviser in their destination country, but this could increase the risk of the client becoming involved in a pension scam.
Mr Davies said: “I would like to see something with significant warnings issued where overseas advisers are involved as to whether they have the capacity to assess the issues.
"It’s immensely difficult for something to be done about it. Banning Qrops altogether changes things but you’ll still have the problems of the overseas advisers.”
julia.faurschou@ft.com
