Trying to transfer retirement savings to a Qualifying Recognised Overseas Pension Scheme (QROPS) has revealed a real advice muddle for expats.
The problem is an advice safeguard requires a retirement saver to consult a regulated UK IFA before moving a pension worth £30,000 or more overseas.
The rule was introduced in April 2015 and was meant to make sure retirement savers understood the implications of losing guaranteed rights when leaving a final salary pension scheme.
Instead, the rule may have put a brake on QROPS transfers because retirement savers have to pay to sets of advisers – one in the jurisdiction receiving the funds and another in the UK.
Third party QROPS are even more complicated.
These QROPS are based in a different jurisdiction from where the expat lives, so introduce another layer of advice.
Doubts about advice
The Department of Work and Pensions suspects some countries where expats live have few regulated financial advisers, making the advice safeguard almost impossible to meet.
Civil servants have also revealed that they are unsure how many British expats may want to switch their UK pensions to a QROPS.
They estimate the number who might want to is around 700,000, but could be several hundred thousand more or less.
Mandarins are also concerned that expats may not need the same pension advice as retirement savers in the UK as their reasons for moving their cash offshore are different from savers at home.
But they are concerned that changing the rules will create a two-speed advice highway with different rules for British savers and another set for expats that will be just as confusing as the current set and open to abuse.
Call for evidence
The timescale for changing the rules is open-ended.
The consultation is set to end on December 23, 2016.
In the New Year, a report on the findings will follow and then a new set of safeguards for QROPS transfers, probably as part of the Finance Bill 2017.
“Permitting transfers via advisers or to overseas schemes located in countries where the member is not resident could introduce significant additional risks to consumer protection from scams, or difficulties obtaining financial redress.,” says the consultation.
“The government welcomes views on the relative merits and potential issues of extending the coverage of an equivalent advice requirement process for transfers involving advice or pension schemes located in a third country”