The UK’s Department for Work & Pensions (DWP) confirmed on Tuesday that the advice requirement “is working as intended for overseas transfer by offering an effective level of protection for members”.
The statement followed a consultation the DWP launched in 2016 on whether the advice requirement created difficulties for overseas residents looking to transfer their pension savings from the UK to an overseas scheme.
Pension scheme members must seek financial advice from a UK regulated IFA before they can transfer pots worth more than £30,000 ($42,604, €34,324).
The requirement was introduced in 2015, alongside the pension freedoms, and applies to both UK and non-UK pension schemes.
Unfair for non-UK residents?
The consultation sought industry feedback on how a possible easement for overseas residents could work.
Fifty-two responses were received; including from large and small adviser firms based in the UK and overseas, as well as firms with an international presence.
They included The Qrops Bureau (now QB Partners), Montfort International, the Gibraltar Association of Pension Fund Administrators and the Investment and Life Assurance Group.
Feedback was also received from pension providers, lawyers, trustees, administrators, professional bodies and consumer protection bodies.
Over half supported retaining the current requirement, although some acknowledged the additional challenges faces by overseas pension scheme members.
“[The disadvantage is that] an expatriate may find it difficult to source advice from a UK FCA regulated adviser and may not proceed with considering a transfer because of these practical difficulties, rather than for the right reasons” – QB Partners.
Approximately a quarter stated they would prefer an easement that would allow non-UK residents to use an overseas financial adviser rather than an FCA regulated one.
“The main advantage is that the member receives advice from a financial adviser based in a good regulated environment. He benefits from the access to the Financial Ombudsman if the client believes the advice was wrong and the Financial Services Compensation Scheme if the firm that gave the advice cannot meet its liabilities” – Montfort International.
Just two respondents suggested that no advice should be required for non-UK residents.
“The majority of those who stated a preference for an easement were advisers based outside of the UK or multinational firms,” the DWP report stated.
Extra time and cost
There was no evidence submitted that suggested the requirement to take financial advice is actively preventing overseas residents from transferring their safeguarded pensions, the report added.
However, it was pointed out that there was the potential need for overseas residents to pay for two financial advisers – one local and one UK.
Additionally, the length of time it took to find suitably qualified advisers meant that some pension members were unable to get advice within the three-month period during which the transfer value was valid.
“UK advisers do not necessarily have knowledge of overseas legislation and regulation. This can lead to the UK adviser taking advice from an overseas firm, at extra cost to the client, in order that he can complete his advice report” – Gibraltar Association of Pension Fund Administrators.
