There have been many headlines recently that have focused on the increased difficulties encountered by non-UK advisers and their clients when trying to transfer out of existing UK pension schemes.
For example, the ban on contingent charging in connection with defined benefit (DB) transfers was implemented on 1 October 2020.
This is the biggest intervention by the Financial Conduct Authority (FCA) in terms of adviser remuneration since 2013 when they implemented the Retail Distribution Review (RDR) rule changes that banned commission in the UK, writes Paul Forman, international sales and technical manager at platform Novia.
Many industry commentators argue that the result of this change will, ultimately, be fewer transfers; primarily due to an exodus of advisers who are able to provide the services required to complete these transfers.
In particular, ‘pension facilitator’ firms who assist advisers without the required UK regulatory permissions have been under the microscope of the FCA.
During a recent Work & Pensions Select Committee hearing, the regulator said: “We are working on ways to tackle this model.”
Too much hassle
Nonetheless, many such firms are already leaving the market in droves, especially as they are now unable to access professional indemnity (PI) insurance at affordable rates of renewal.
Evidence of this can be seen by the fact that, in the three months following the announcement of the contingent charging ban, some 193 firms voluntarily gave up their permissions.
In addition, many clients are simply unable to pay in advance the typical £3,000 ($3,913, €3,313) in advice fees associated with this type of service from a UK pension transfer specialist.
Some may instead opt to go down the route of ‘abridged advice’ which will be a lot more affordable, however the aim of this is to provide a quicker and more cost effective way of screening out those clients where a transfer is unsuitable, rather than to circumnavigate the new rules with an alternative form of positive advice.
Another issue increasingly being flagged by non-UK advisers is that simply trying to get a UK pension provider to respond to their letter of authority requesting a transfer pack, which is proving to be more and more difficult.
Therefore, it is of little surprise to hear that when faced with these obstacles many advisers are now deciding that pension transfers are simply more hassle than they are worth and are focusing their efforts elsewhere on other areas of advice and financial planning.
Problems for expats
With many attention grabbing headlines on pension transfer difficulties, it would be easy for some advisers to have missed another, more pressing issue; and one that could impact many more clients – both new and existing.
Some UK pension providers will not pay retirement income into overseas bank accounts, and if they do, they may charge administrative fees to do so.
As a result, many UK expats elect to have their regular pension income paid directly into a UK bank account instead.
However, many of these clients now face having their UK bank accounts closed at the end of 2020 following the UK government’s failure to, so far, negotiate a Brexit banking deal with the EU.
Some banks like Lloyds, Barclays and Coutts have already given notice to their existing expat customers. With no post-Brexit rules in place, banks have been left to decide which EU countries they want to withdraw from and which countries they want to continue operating in.
By law, UK banks will have to apply for new banking licences if they want to continue providing services for British customers living in the EU.
Some have already decided they would rather close accounts than attempt to navigate the bureaucracy of working with the individual banking rules of each individual EU member state.
Let down
In one example, a lady who lives in France was told that her bank account would be terminated in mid-November even though she has been a customer for 40 years.
Customers of Barclays in Spain, France and Belgium have also been informed about their accounts closing.
Some Brits are now reportedly trying to keep their bank accounts open by using creative means – such as using the addresses of UK-based family members or friends – but many will find this potential loophole is blocked when it comes to supplying the required anti-money laundering evidence.
The EU banking rules that previously allowed UK banks to work in other European countries without any issues, known as passporting, are the foundation of the EU’s single market which the UK may not be part of at the end 2020 if a deal is not secured with Brussels at the eleventh hour.
Those clients who were hoping that HM Treasury would come to their rescue on this particular issue have been left disappointed by their recent vague statement which simply said: “We expect banks to treat their customers fairly and provide timely communications to enable them to make appropriate decisions.”
Alternatives
With the lack of a Brexit deal now a real prospect, it means that Brits in the EU affected by this issue need to make alternative arrangements as soon as possible as potential alternative options such as Natwest and Santander have ominously said that they currently do not have plans to shut down accounts but are only “considering their options“.
With the perfect storm of differing expat financial planning issues combining at the same time, there has never been a better time for professional, regulated advisers to meet this client demand.
Those advisers who are prepared to be resilient and use their experience and knowledge to facilitate the necessary advised solutions might now look forward to 2021 more positively than they originally thought and see a raft of opportunities and not the hurdles initially presented by the headlines mentioned above.
This article was written for International Adviser by Paul Forman, international sales and technical manager at Novia
