Consumer watchdogs have issued new guidelines to UK financial advisers involved in transfers to the Qualifying Recognised Overseas Pension Scheme (QROPS).
In a wide-ranging update, the Financial Conduct Authority, the organisation that regulates financial advice in the UK, has told IFAs that they must liaise with overseas IFAs when dealing with transfers to overseas pensions.
UK advisers give expats a detailed report that covers three main factors:
- The likely returns from assets in which the expat’s money will be invested
- Any risks linked to the investment
- Providing a detailed breakdown of all costs and charges the client should expect to pay during the transfer
“We acknowledge that non-UK residents considering a pension transfer are likely to need to seek advice from both an overseas adviser for investment advice and a UK adviser for advice on the proposed transfer. In order to advise on the merits of the proposed transfer, the UK adviser should take into account the specific receiving scheme,” says the FCA guidance.
The new guidance also updates instructions to IFAs dealing with transfers from pensions with safeguarded benefits into schemes that come without any guarantees.
This would cover a transfer from a final salary workplace pension to a QROPS, for example.
“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,” says the FCA.
“We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed.
Meeting FCA expectations
“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.”
The main thrust of the new rules is to stop IFAs making comparisons between pensions based on generis information. Now, comparisons must include data from a specific pension and advisers must detail yields and risks relating to assets held within the scheme.
“Unless the advice has considered the likely expected returns of the assets, as well as the associated risks and all costs and charges that will be borne by the client, it is unlikely that the advice will meet our expectations,” says the FCA.