Pension Transfer Rules Confirmed. How Does This Affect You?


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The Financial Conduct Authority in the UK has confirmed its rules on pension transfer advice. There is no exception for non-UK residents, so the rules also apply to expatriates and those moving into QROPS.

Two months after the new “pension freedom” began in the UK, the Financial Conduct Authority has confirmed its rules on pension transfer advice. There is no exception for non-UK residents, so the rules also apply to expatriates and those moving in Qualifying Recognised Qualifying Overseas Pension Scheme (QROPS).

The Financial Conduct Authority (FCA) is anxious that retirees are well advised on their pension transfers. You should be too, and take professional, regulated advice on your pension options. For most people their pension savings play a key role in determining their lifestyle and financial security through retirement.

The introduction of the new pension freedom, which only applies to defined contribution (money purchase) schemes, means many people with defined benefit (final salary) schemes are eyeing a pension transfer to take advantage of the new flexibilities.

The FCA published its June 2015 policy statement, “Proposed changes to our pension transfer rules; feedback on CP15/7 and final rules”, on 8th June. It sets out the rules around the transfer of safeguarded benefits, primarily held within defined benefit schemes, to flexible arrangements like occupational pensions, SIPPs and QROPS.

It confirmed that transfers from defined benefit schemes over £30,000 require a review by an adviser with a suitable pension transfer qualification and who is regulated by the FCA.

Pension fund managers and trustees must check that the individual has received advice from an FCA authorised adviser before transferring benefits.

British expatriates have further levels of complexity to deal with. The FCA document considers non-UK residents, and says that there are additional considerations to be taken into account where the individual is resident overseas. The policy statement explains:

….this means that a non-UK resident seeking to transfer pension benefits overseas will need to seek advice from an FCA-authorised adviser on the implications of proceeding with the transfer. As FCA-authorised advisers are unlikely to know the local tax regime or pension rules, non-UK residents seeking to transfer pension benefits will be likely to need to seek advice from both an FCA-authorised adviser and a local (resident) adviser.

Previously, a non-UK resident wishing to transfer a defined benefit scheme to a QROPS may have simply employed the services of an offshore advisory firm. Now, the same transfer requires the involvement of a suitably qualified UK pension transfer specialist.

The same applies for anyone wishing to transfer from a defined benefit to a defined contribution scheme to take advantage of the pension freedom.

UK pension advisory firms are unlikely to double up as tax advisers, and will not be able to advice you on taxation abroad in your country of residence. Expatriates looking to transfer their pension may need to employ the expertise of different advisers: a UK firm to get the authorised advice required; a local advisory firm for pension advice, and a local tax advisory firm to make sure understand all the tax implications – this is very important as is likely to affect which pension option is most suitable for you.

This is far from ideal. Receiving advice from different sources and having to put them together to understand the overall position is difficult for anyone to do. It is always easier to understand advice where it runs concurrently from one point to another. What you need is holistic advice, to cover your pensions, the investments within the funds, your investment options should you take the cash, the tax implications in both your country of residence and the UK, and estate planning considerations.

As much as possible you want to avoid having to use two or three advisers. You can overcome that anxiety if you can use a firm which is regulated by the FCA (and which has the requisite pension transfer specialists) and which is also based locally in your area of your country of residence. This way your adviser will understand all the local implications as well as the UK pension rules and options.

This is possible, since article 56 of the Treaty on the Functioning of the European Union allows the freedom of movement of services within the Union. It gives regulated entities within one EU country permission to legitimately conduct business in another, through the EU’s Insurance Mediation Directive. This is how Blevins Franks Financial Management Limited is regulated. It is regulated by the FCA and has a specialist UK pension team, including a number of pension transfer specialists with the requisite qualifications and permissions. We also have advisers living locally in France, Spain, Portugal, Cyprus and Malta, and experts in Spanish, French, Portuguese, Cyprus, Malta and UK taxation.

It is very important to be aware of the full implications of your pension decisions. This includes any risks to your long-term financial security, and all the tax and estate planning implications. You need to adequately assess all your pension options before you can determine the best one for you. Just looking at one or two in isolation is risky.

And the best advice is to carry the FCA’s rule on taking regulated advice forward to all your pension decisions. This is a highly complex area; getting it wrong could have serious consequences.

25 June 2015

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.