The British government suspects strict rules about transferring pensions worth more than £30,000 to a Qualifying Recognised Overseas Pension Scheme (QROPS) are putting some expats at a financial disadvantage.
The Department of Work and Pensions is considering whether to scrap the need for expats to seek advice from an adviser regulated in the UK when they transfer retirement savings overseas.
Current rules called the ‘advice safeguard’ maintain that savers have to discuss their financial plans with a qualified and regulated IFA before triggering a transfer to a QROPS.
But although evidence is unavailable, the government believes the cost of taking advice is stopping many expats from taking advantage of a QROPS.
The advice safeguard came into effect in April 2015 and applies to pension transfers within the UK as well as offshore QROPS.
Double cost jeopardy
Surprisingly, the government does not know how many British expats are affected by the measure, but believes around 700,000 could be affected.
Another worry is taking the advice is expensive because offshore advisers are not regulated in the UK and savers have to pay again for a UK authorised adviser to rubber-stamp their transfer.
“This call for evidence seeks to gather information on how the requirement to take advice is working for overseas members, and whether the current process should be maintained or adapted, to work better for individuals who are moving or already resident overseas,” says the DWP consultation.
“It also explores whether an alternative process to the existing advice requirement can and should be developed for overseas transfers. As this represents a significant step, the government would need to carefully consider whether the potential benefits and risks of changing the requirement for one group of safeguarded members is in their interests, including whether any alternative can in fact offer the same consumer protections.”
Quality of advice concerns
The DWP argues that quality of advice is maintained as UK regulated advisers have to handle a transfer to a QROPS.
Now, the DWP recognises that expats may need different advice as their reasons for transferring to an offshore pension are not the same as switching onshore pensions, such as local tax rules.
“The member may also be exposed to unnecessary risk because advice is taken in two different jurisdictions, with the result that it is not clear how the member should seek recompense in event of a poor outcome as a result of the advice,” says the consultation.
The consultation closes on December 23, 2016.