UK gov’t decides against ‘watering down’ advice requirement for ‘safeguarded’ benefits

The UK government has today confirmed it will maintain a requirement that savers who are considering an overseas pension transfer that would see them giving up “safeguarded” benefits worth £30,000 or more must first obtain regulated advice from a UK-based adviser.

The government had been considering proposals to water down the requirement, amid concerns that savers wanting to take advantage of so-called pension freedoms, which now make it possible for them to move their retirement pots abroad, face what some say are unnecessary barriers.

However, in a 15-page Department for Work  & Pensions document posted on its website, it said that, “having considered the responses” it had received to its call for evidence last year, it thinks “that the advice requirement as [currently] applied to overseas transfers is largely working, and does not require an easement”.

Although the data shows that there were some 9,700 transfers of UK pensions into qualifying registered overseas pension schemes in the tax year 2016 to 2017, it wasn’t possible to determine how many of these would have been affected by the advice requirement, in addition to which, “following the introduction of [a new] 25% tax charge in March 2017, there was a reduction in the number of transfers” being made into such overseas schemes, the government notes, in its response.

Thus “the evidence received did not indicate that the requirement to take financial advice is routinely preventing overseas residents from transferring their safeguarded pensions out of the UK”.

What’s more, “the Financial Ombudsman Service reported only four complaints in relation to the advice requirement in the 18 months from when it was introduced to when they responded to our call for evidence,” the government statement continues.

“We’ve seen fewer than 20 complaints over the last three years about transfers overseas or difficulty in accessing UK pension benefits from overseas.

“Of these, four relate to the advice requirement imposed since the introduction of the pension freedoms… Approximately 20% of these complaints overall have been upheld.”

The government assessment does acknowledge, however, the apparent existence of a shortage of pension transfer specialists available to provide the mandatory advice, with the result that UK pension scheme members currently “sometimes struggle to find a financial adviser, or face delays while waiting for an adviser to complete the advice process on their proposed transfers”. But it notes that the market is already moving to accommodate the demand.

“Providers of pension transfer qualifications introduced new qualifications in anticipation of the FCA’s rule changes, and have reported high demand for them,” it points out. “The Chartered Insurance Institute reported that more than 500 personal finance professionals signed up to its new pension transfers qualification within the first week.

“We expect this to lead to an increase in the number of pension transfer specialists in due course.”

It concludes by inviting those who still believe an easement on the pre-transfer advice requirement to demonstrate “how an easement that allowed members to satisfy the requirement by taking advice from a financial adviser in their country of residence might work”.

“Importantly, we are not satisfied that an easement that allows the advice requirement to be met by an adviser not authorised and supervised by the FCA would offer sufficient protection to members.

“Transfers can carry the risk of scams, and this is potentially magnified for overseas transfers where the
destination of the funds being transferred can be more opaque.”

‘Could have been a recipe for disaster’

Tom Selby, a senior analyst at AJ Bell, was among those who felt the government had made the right decision in retaining the advice requirement.

“Easing the advice requirement for transfers of guaranteed pensions to overseas schemes could have been a recipe for disaster,” he said.

“We know a significant number of pension scams involve moving money to vehicles in foreign jurisdictions, which often lack the protections available in the UK.

“Fraudsters would inevitably have seized on any scaling back of the advice requirement to target people with defined benefit pensions and valuable guaranteed annuity rates.

“While HMRC’s stance will make it more costly and time-consuming for people to transfer larger guaranteed pensions into overseas schemes, this seems a small price to pay to ensure members are protected.

“Indeed, with the ongoing attention being placed by the FCA on defined benefit transfer advice, it would have been odd for HMRC to water down the advice requirement for people transferring to a QROPS.”

Fifty-two respondents 

Some 52 companies contributed comments in response to the government’s “call for evidence” on the advice requirement for overseas pension transfers, including many well-known advisory firms, the Isle of Man Financial Services Authority, the Gibraltar Association of Pension Fund Administrators, the Australian Securities & Investments Commission, the Superannuation Arrangements of the University of London and The Pensions Advisory Service.

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