One of the founders of Strabens Hall, a London-based wealth manager with international clients, has added his voice to those critical of a just-unveiled UK Department for Work & Pensions consultation – which seeks industry thoughts as to whether a new requirement that non-UK-resident holders of UK pension schemes get advice from an FCA-authorised adviser before transferring their pensions overseas is a good idea – saying that it is “distressing to see…so soon after the introduction of pension freedoms”.
“We are concerned this may the first of a series of changes that could have negative consequences for pension members,” Strabens Hall director Adam Benskin added.
“It is also unclear whether the DWP has engaged sufficiently with the FCA in order to develop a coherent approach.
“The rules are not in place to prevent members of UK pension schemes from transferring if they wish to; they are designed to provide important checks and balances for people who are contemplating taking an irreversible course of action, and who may not be fully aware of the implications or the potential value of the benefits they are considering giving up.”
As reported, the DWP consultation was unveiled last week, as part of an effort, the Government said, to determine whether the need for non-UK-resident pension scheme holders to get a UK-authorised expert to sign off on their plans to transfer their pensions overseas was in fact the best thing for these individuals.
While a number of industry executives, including deVere Group chief executive Nigel Green, argue that the rules brought in last year with the introduction of new pension freedoms have come with “many negative unintended consequences” that they say includes higher costs for clients, others share Benskin’s contention that any change to the existing rules that would have the effect of weakening them would be potentially disastrous.
Pension transfer advice ‘since 2007’
Strabens Hall has offices in London’s West End as well as in the Central district of Hong Kong, and has been advising clients on pension transfers from the UK to overseas schemes since 2007, according to Benskin.
At Strabens, “each [pension transfer] case is treated on its merits,and there will often be a very good reason why a transfer is likely to be in the best interests of a client,” he maintains.
However, pensions are also “often the second-most-valuable asset a client has after their home”, Benskin continues, and for this reason, “the use of a UK-regulated adviser provides access to levels of protection, and potential redress, if a problem emerges later.”
This is all the more important given the fact that “the very nature of pensions means that it can be many years after a transfer [takes place] before any issues emerge”, he says.
Then there is the fact that many countries in which expatriates are living when they decide to transfer their pensions are notable for their “lighter touch” – and even, in some cases, all but complete lack of – the necessary regulation to ensure an acceptable outcome if it is ever needed to prevent a pension plan member from losing their entire savings, as Benskin notes has happened far too often in recent years.
Less dramatically, individuals can also simply end up with dud deals, he notes.
“Through both our London and Hong Kong offices, we have seen cases where non-UK clients [were] advised to move their pensions into offshore arrangements that provide them with no immediate tangible benefits, yet the initial costs of the exercise can be approaching 12% of the [total]e transfer value,” he notes.
“Some UK final salary pension scheme trustees send out warning notices of the practices of offshore IFAs as soon as they receive a letter of authority from an offshore IFA. The warning notices [typically will ask whether] the pension scheme member had been cold-called [by the overseas advisory firm recommending the transfer], and also give [them] examples of how pension scheme members can be scammed.
“We think these warning notices are very positive practice, and provide a much-needed safety net for vulnerable people who may be exposed to high-pressure sales tactics.
“Many of our clients’ financial affairs have an international aspect, and it is quite normal in these situations to work with practitioners from other disciplines who are able to provide legal, tax, pension or other advice in a client’s home jurisdiction.
“Cross border transactions are by their very nature more complex. Multi-jurisdiction advice may carry a higher cost in terms of professional fees, but this approach should ensure that the client has a clear picture of the pros and cons of their intended actions and is able to make an informed and objective decision as to how to proceed.
“Critically, the continuing use of a UK regulated adviser will ensure the maximum protections for the client in respect of the transfer from the UK pension.
“Our view is that the updated rules introduced in April 2015 – requiring there to be an FCA-authorised adviser involved in any transfer of so-called ‘safeguarded benefits’ – are a highly positive development and should not be weakened, even though this, undoubtedly, may occasionally frustrate some non-UK-resident pension scheme members.”