QROPS Providers need to be aware of new pension laws that powers to stamp out pension unlocking schemes and transfers to rogue Qualifying Recognised Overseas Pension Schemes (QROPS).
The main provisions are aimed at stopping pension advisers from offering incentives to employees to move their pots from workplace schemes in to riskier set ups – but the sting is hidden in the tail for expats and international workers who want to transfer their pensions offshore.
The Pensions Bill is out for consultation, but already the pensions industry has picked up some prickly issues for retirement savers and providers at home and abroad.
The law will place limits on what pension savers can do when transferring their pensions away from UK direct benefit schemes.
There is also provision for the Department for Work and Pensions (DWP) to clampdown on pension liberation or unlocking schemes and stop a transfer taking place.
Pension unlocking targeted
A section of the bill bans advisers and providers from offering incentives to someone to transfer their pension rights from a direct benefit scheme.
This move would tackle the Enhanced Transfer Value (ETV) market which has been raising concerns for regulators, while also tackling head-on those offering ‘pension liberation’ vehicles.
The laws would also have an effect on all registered pensions scheme, including QROPS.
Those running ‘pension liberation’ schemes tell potential clients they can release more cash from their scheme by legitimately transferring it into another scheme.
Low annuity rates being offered by pension providers is helping to fuel this demand but many people following this path run the risk of losing their money.
That’s because unwitting investors don’t realise that it is very easy to register a pension scheme online – those doing so have to provide the information demanded by HM Revenue and Customs and registration is then automatic.
Fines for illegal transfers
There is no on-going monitoring of the scheme and it can only be deregistered if HMRC later discovers that the application was inaccurate or there were false declarations made – this applies to QROPS as well as pension unlocking schemes.
Unfortunately, by the time this happens it might already be too late for those who transferred their pension to the scheme. They stand to lose everything.
However, those transferring their pension from a direct benefit scheme are exercising their legal right to do so.
In a bid to stop this, a clause in the new act prohibits the offering of incentives to induce someone with a salary related pension scheme to transfer it to a new scheme.
Failure to comply with the law will see those offering an incentive being hit with a fine of up to £50,000 – and that could be multiplied by the number of people who took up the incentive.
