QROPS expat pension investors who self-manage their investments could slip through a regulatory hole that leaves them open to fraudsters and scams.
Although QROPS providers self-certify and police their schemes, they do not give advice on the suitability of investments, which is in line with onshore pension firms.
In the UK, the Serious Fraud Office (SFO) and Financial Services Authority (FSA) have warned that self-invested pension plan investors are reporting a rising number of frauds involving unregulated renewable energy investments.
Senior SFO lawyer Jane de Lozey highlighted the problem at a London conference of the Pensions Management Institute.
She explained that sophisticated conmen set up plausible renewable energy investments, often involving biofuel or rainforest projects.
Renewable energy investments
Money is transferred from a SiPP in to the investment fund and then transferred on again by the crooks.
“The investments are highly speculative at best and fraudulent at worst,” she said. “Many of these criminals have worked in the industry and know the terminology and reassurances investors look for.”
The FSA has warned SiPP operators and investors in the UK about the danger of fraud and wants providers to take on more responsibility for regulating underlying assets in a pension fund.
“Disruption is our key objective so much fraud is out there,” de Lozey said. “One key area for controls is at the point of transfer. There is a need to have checks that the receiving scheme is an occupational scheme, but people are good at setting up what looks like a reputable pension. We would really like the providers to act as gatekeepers.”
The problem for expats is that it may be easier for fake QROPS pension schemes to be created as they are in other parts of the world.
Quality QROPS advice
However, few QROPS providers regulate investments within their funds and often ask clients to certify that their transfer has been recommended by an independent financial adviser.
Once expats have a QROPS pension, some schemes allow them to opt to self-manage their funds – and this is where the fraud issue can arise as they do not have the resources to check if a fund is bona fide.
Many scheme providers are pushing for professional investment firms to manage client’s pension rather than having the individual self-manage their QROPS
“Some jurisdiction laws also rule out that a member can manage their own pension fund”
The FSA is currently consulting with SiPP operators over their lack of compliance after a review found many pension managers failed to understand many regulatory requirements.
For QROPS advisers, this highlights the need for taking quality advice from an IFA and only considering providers in financial jurisdictions with first class regulators overseeing the pension market – like Malta and Gibraltar.
If you would like to be put in touch with a qualified financial adviser, please contact us via the contact form here for a referral.