Pensions 

Advising on overseas pensions involves know-how and ethics

  • To understand the changes announced by the DWP in March
  • To grasp the difference between advising on Qrops and advising on a UK pension
  • To understand what the FCA has said about Qrops
CPD
Approx.30min
Advising on overseas pensions involves know-how and ethics

Pension advisers would have breathed a collective sigh of relief in March when the Department for Work and Pensions (DWP) announced that the mandatory advice requirement on overseas pension transfers would remain unchanged for the foreseeable future. 

As part of an ongoing government inquiry looking at the difficulties experienced by cross-border residents when transferring their pension pots to and from the UK, the government had considered the feasibility of easing existing regulations. 

The current ruling requirements, introduced in 2015, applicable to both UK and non-UK pension schemes with safeguarded pension benefits, obliges members to have financial advice from a UK regulated independent financial adviser, with the required permissions, prior to the transfer of pensions valued over £30,000.

Respondents

Over 52 responses were received by the DWP from a range of adviser firms, based in the UK and internationally, as well as those with an overseas representation. In all, results from the DWP’s consultation revealed over half of the respondents supported maintaining the current requirements with an acknowledgement of the additional challenges that may be faced by overseas pension scheme members.

The DWP’s statement, released on 27 March, confirmed the current advice requirement “is working as intended for overseas transfers by offering an effective level of protection for members.” 

As a supporter of the verdict, I believe the conclusion makes sense and ensures a more informed and ethical approach when recommending overseas transfers. But how does the DWP announcement sit with the current state of the industry and what future recommendations should it make?

As founder and managing director of Montfort – the first UK-based IFA firm to specialise in global financial planning, cross-border solutions and emigration – it is fair to say that I have seen it all. Montfort was established in 1995 when very few cross-border solutions existed, be it from the UK or globally.

Fast forward 20 years, there is still a significant lack of awareness within the IFA community about the level of complexity such cross-border cases require, with very few professionals holding the required technical expertise to advise in this area. Even when experts are qualified, circumstances can become hazardous and entering unchartered waters is commonplace, in other instances professionals may flatly refuse to advise due to their own risk concerns, and the opportunity for unscrupulous advisers, often based abroad and away from the FCA’s watchful eye, increases.

In the last 25 years, some 20m individuals have either left, entered or returned to the UK. Whether it be to seek more-transient working lifestyles overseas or our ageing populations opting for retirement ex-UK, emigration is on the rise.

Brexit deadline

As the 2019 Brexit deadline looms ever closer, the discussion becomes even more poignant and especially so when you consider that without expert, technical financial advice, it is estimated individuals considering global migration and the associated transfer of their wealth overseas may face tax liabilities and charges of up to 55 per cent on their total pension asset value.

Key points

  • The DWP recently announced that overseas pension transfers will require financial advice.
  • Cross border transfers can be extremely complex.
  • The announcement will hopefully block scammers from targeting individuals who want to make the transfer.

Advising on overseas pension transfers from the UK must therefore incorporate a holistic approach to consider all aspects of a client’s financial, visa and tax situation and any future migration plans, including a potential return to the UK and departing country tax and other consequences. Ignorance about this can cost a client hugely in their future decumulation years and a legal claim for wrong advice may surely follow.

CPD
Approx.30min
  1. What statement did the DWP release on 27 March in relation to Qrops?

  2. According to Geraint Davies, what is the tax charge on client assets if they do not receive financial advice?

  3. According to Geraint Davies, which of the following might NOT have their actual or beneficiary status affected, regardless of the UK pension they hold?

  4. What did the FCA say about transfers?

  5. When should the client point out the limitations of advice?

  6. According to Geraint Davies, what requirement did the DWP report suggest for overseas residents?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand the changes announced by the DWP in March
  • To grasp the difference between advising on Qrops and advising on a UK pension
  • To understand what the FCA has said about Qrops

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