Unless you have been hiding under a stone for the past eight months, you will not have failed to spot numerous articles in the trade press quoting frustrated advisers experiencing delays to their client pension transfers requests, writes Paul Forman, international sales and technical manager at Novia Global.
These complaints seem to have spiked following new anti-scam rules introduced by Department for Work and Pensions (DWP) in November 2021.
The Pensions Regulator and DWP have sought to allay some of these concerns over pension transfer rules and their application to certain requests.
In a joint statement published on 5 July, the bodies confirmed that the DWP is currently reviewing the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021, which came into force over six months ago. They added that a report will be published within 18 months of the rules being in place.
As a reminder, the rules replace the former statutory right to transfer and now give a ceding scheme trustee the potential power to pause or even block a pension transfer, if they deem it necessary to raise a ‘red flag’.
Alternatively, they can raise an ‘amber flag’ if they suspect a client is likely to be a potential victim of a scam. If so, it will mean the member will have to provide evidence that they have taken specific anti-scam guidance over the telephone from the Money and Pensions Service (MaPS) before being allowed to complete the requested transfer.
Delays
As a result, this new regime has resulted in many transfers being delayed.
In February, the government warned that it may amend the rules so that low-risk overseas investments would no longer be flagged. TPR, meanwhile, said that it had updated its guidance on transfer requests to address these concerns.
“The regulations are not intended to impose additional burdens on schemes or administrators, or to impact on standard business practices,” the statement read. “We understand that concerns have been expressed about applying the regulations where overseas investments feature in the transfer,” it continued.
The regulator’s new guidance suggests that trustees may wish to retain records of “low-risk personal pension schemes”, or clean lists, which they can use to oversee some transfers without an onerous administrative burden on a case-by-case basis.
The aim being that such records allow trustees to maintain a smooth transfer process where due diligence analysis shows no risk without the need for additional checks for a transfer to progress as normal.
The TPR and the DWP’s joint statement further advised that where a transfer causes no concern – which should be the vast majority of cases – they should proceed with no further action required.
However, probably of most concern in this update for overseas advisers, is red flag three which is now defined clearly – Someone carrying out a regulated activity without the correct regulatory permissions from the Financial Conduct Authority (FCA) to:
- provide pension transfer advice;
- provide advice about where to invest their pension; and
- make arrangements for the member to buy or sell investments or making arrangements with a view to the member buying or selling investments.
Typically, many overseas regulated advisers will have a working relationship with a FCA-regulated financial adviser when their client is seeking to transfer a scheme that contains safeguarded benefits in excess of £30,000 ($36,6535, €35,930).
The UK partner firm will be able to evidence the necessary permissions to a ceding defined benefits scheme in order to provide the required pension transfer report that allows such a transfer to complete smoothly in due course.
Ambiguity
However, due to continued ambiguity as written, the new guidance may see a rocky road ahead for overseas advisers when advising clients on UK money purchase scheme switches to other UK money purchase schemes e.g. Sipps.
This is because the ceding schemes may well decide to interpret the need for a UK regulated adviser to be part of the advice process and in the absence of such evidence, may elect to raise a red flag.
If this is the case, then one solution suggested by some in the industry, could be that the same UK regulated adviser partner that is used with safeguarded benefit transfers, will need to similarly input in order to get a DC switch successfully completed – likely resulting in increased costs for both advisers and clients alike.
In essence, where trustees believe the regulations read as to mean there is no statutory right to transfer but conclude following due diligence that the transfer is at low risk of a scam, then trustees can grant a ‘discretionary transfer’ where their scheme rules permit them to do so. To this end, Novia Global will be looking to assist advisers by giving rigorous feedback to ceding schemes to help maximise the number of transfers that complete smoothly.
At the same time, we will also look to educate them with regards to some of the unique difficulties that many non-UK resident clients have with regards to access to advice, hopefully resulting in them not having to pay higher advice fees compared to their UK resident peers.
It remains to be seen what the outcome in practice will be. However, if things do not change soon, it could continue to be a frustrating period for advisers until the promised review is completed by the summer of 2023.
This article was written for International Adviser by Paul Forman, international sales and technical manager at Novia Global
