IFAs are worried Qualifying Recognised Overseas Pension Schemes are a mis-selling scandal waiting to go off after advice concerns were voiced by regulators.
The Financial Services Authority (FSA) has confirmed that IFAs should have offered customers a QROPS option when talking about retirement investments.
The fear for IFAs is many may face miss-selling complaints because they did not consider QROPS as an alternative pension option.
The issue comes after the controversial retail distribution review (RDR) which imposed new rules on the selling of financial products and who can sell them.
A problem for IFAs is the FSA believes that QROPS are not solely designed for expats who may have emigrated from the UK and could be useful investments for a wide range of investors.
FSA warning
The FSA has highlighted that other potential retirement savers who may be suitable for a QROPS would include an international worker with British pension rights and anyone holding more than one passport.
IFAs should also consider the option of a client who is thinking about moving abroad after retirement or those who are married to a non-UK national.
However, many IFAs based in the UK have never heard of a QROPS and few have the specialist tax and investment training required to adequately advise a client on transferring their pensions to a scheme.
QROPS are a tax effective and flexible way to move a pension pot if the saver is retiring or moving abroad.
HM Revenue and Customs (HMRC) recognises and monitors the schemes because a QROPS should offer a similar product to a UK pension and not give the saver a financial advantage because they live abroad.
Financial analysts are predicting an issue involving inexperienced advisers not offering advice on QROPS.
Tax problems
They are also concerned many IFAs fail to flag up the possibility that a QROPS may be removed from HMRC’s list if the provider contravenes the pension rules.
However, the biggest issue facing the financial services industry is the general lack of awareness of QROPS.
When giving QROPS advice, IFAs must consider the relative pros and cons of a QROPS against other retirement savings – and the possible tax consequences of for a QROPS investor drawing their pension in a foreign country.
This is made even harder when some savers do not know where they will live in retirement or some QROPS are based in a third country because the place where the expat lives does not recognise a QROPS.
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