Earlier this week, the DWP announced proposals to change the advice requirement, which means individuals, including those living outside the UK, must take financial advice from a Financial Conduct Authority (FCA)-regulated adviser for all transfers out of final salary or guaranteed annuity rate (GARS) pension schemes for pots over £30,000 ($39,631, €35,126).
The department said it is looking into whether to scrap the requirement, introduced with the pension freedoms in April 2015, for expats after it found they were having to consult two sets of advisers – a UK-based regulated adviser and a local adviser – to complete an overseas pension transfer.
As result, the DWP said the advice safeguard “financially disadvantages” around 700,000 UK expats who plan to move their pensions abroad into an overseas scheme at some point in the future.
Instead, it may allow British expats to use locally-authorised financial advisers, who would be subject to a minimum set of recognised standards, instead of UK-regulated advisers.
‘Impossible’ TVAs
Speaking to International Adviser, John Batty of Isle of Man-based Boal & Co, an actuarial consultancy firm specialising in international pension schemes, welcomed the long-awaited proposals, adding that expats should be able to use local advisers.
In August, Batty warned that the advice requirement was dampening sales of recognised overseas pension (Rops).
“At the moment, there is a problem for people who live overseas and want advice because by definition they’re living somewhere where the IFA isn’t FCA-regulated,” he said on Tuesday.
He explained on that currently, in order to transfer a DB scheme to an overseas pension, a UK regulated adviser must complete a transfer value analysis (TVA), which calculates what rate of growth an annuity must pay to match the benefits of a final salary scheme.
However, Batty points out that this is impossible given that British expats cannot use their UK pensions to buy an annuity from a foreign company.
“The problem with that is if you live in France and have a UK pension you can’t buy an annuity, it’s not possible because a UK insurance company won’t sell an annuity to someone who lives in France and a French company won’t give you an annuity based on an English fund.
“At the moment, the way the transfers are done with FCA advisers, they’re comparing a transfer into something that you cannot physically do in those circumstances,” said Batty.
‘Free-of-all’ advice
Despite his support of the reforms, Batty adds that he doesn’t want a “free-for-all” when it comes to clients accessing advice abroad.
“Pensions are very important, and an overseas pension transfer is a big decision so we would like to see that advice is taken from someone suitably qualified.
“The person giving the advice should a) have experience of the jurisdiction of where their client is based b) be regulated in the country where they are based and c) have suitable UK or equivalent qualifications,” he explained.
Meanwhile, Stewart Davies, Group chief exectuive of Momentum Pensions, a Rops specialist with a Sipps business in the UK, said the company was reviewing the consultation document but has “always advocated obtaining detailed financial and/or tax advice”.
Consumers at risk
However, Chris Lean, a Czech Republic-based adviser with Aisa International, has slammed the reforms, arguing that the proposal to use local advisers instead of FCA-authorised advisers puts consumers of risk of receiving poor advice.
