Regulators Tighten Up Rules For QROPS Advisors

City regulators are cracking down on specialist offshore QROPS pensions advisers for expats.

In recent moves, the Financial Conduct Authority has told several companies to stop giving pension transfer advice to customers.

Several of the advice firms involved have offshore advisers dealing in pension transfers for expats to QROPS, QNUPS and other retirement products.

Other media figures suggest that 16 pension advisers have agreed not to offer consumers advice after approaches by the FCA.

The measures come at the same time as HM Revenue & Customs, the agency enforcing QROPS compliance, has removed more than 400 of the expat offshore pensions from the official QROPS List.

The schemes have all been removed from the list since the start of April.

Pension liberation fears

The cull came after Chancellor Phillip Hammond introduced new QROPS qualifying rules and a 25% pension transfer tax in the Spring Budget 2017.

HMRC has scrutnised QROPS pensions to make sure they are compliant with UK rules and are not pension liberation schemes.

Most of the FCA action seems to relate to transferring funds from UK direct benefit/final salary pensions to offshore QROPS.

Final salary pensions – often referred to as gold-plated schemes – offer guaranteed retirement income and other benefits mainly to employees in workplace group pensions.

Many employers are offering cash of up to 20 or 30 times expected pensions to encourage savers to leave the schemes, which are often facing a shortfall of millions of pounds to pay benefits.

However, moving the cash to a QROPS means losing the guarantees.

Direct benefit payments are based on a formula that takes account of length of service and salary on retirement.

QROPS payments are derived from the value of the pension fund.

Implications of a pension transfer

The FCA says: “We are aware that some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.

“Transferring pension benefits is usually irreversible. The merits or otherwise of the transfer may only become apparent years into the future. It is particularly important that firms advising on pension transfers ensure that their clients understand fully the implications of a proposed transfer before deciding whether to proceed.

“We expect a firm advising on a pension transfer from a defined benefit scheme or other scheme with safeguarded benefits to consider the assets in which the client’s funds will be invested as well as the specific receiving scheme.”