British expats moving to a new life in Spain need to watch out for pension scammers promising the world but delivering nothing other than heartache.
For expats, the problem is checking out financial advisers and pension firms based outside the UK – especially when they seem to be endorsed by HM Revenue & Customs.
Many expats transfer their UK pension funds into a QROPS (Qualifying Registered Overseas Pension Scheme) based in the European Economic Area (EEA).
The move offers many financial benefits, such as investment opportunities and tax breaks unavailable in the UK – but some of the advisers managing expat life savings are crooks.
A warning is the story of a British expat just named Cassie.
Rogue adviser grabs £335,000
According to expat media outlet Olive Press, Cassie lost a £350,000 pension pot to a rogue QROPS adviser.
She transferred her UK pension savings into a QROPS and expected to spend the money on buying and refurbishing a retreat for artists on Portugal’s Algarve. Unbeknown to her, the adviser placed her money in risky investments that slumped in value.
While the adviser earned fees and commissions off the investments, Cassie, aged 66, lost all but £14,000 from her retirement savings.
Now, she is living in a static caravan near Bournemouth and struggling to pay a £60,000 UK tax bill for breaking the terms of a double taxation treaty because she returned to Britain within five years of departure.
Cassie is also pursuing a claim against the advisers through the courts. She argues her adviser never told her about the five-year tax rule.
The advice firm that transferred Cassie’s retirement cash has since stopped trading and faces a group challenge from angry clients who have lost their savings.
Documents put before the courts in Spain say hundreds of expats lost £20 million to the advice firm, which collapsed in 2017.
Many cite confusion over HMRC’s QROPS List as one of the issues that persuaded them to transfer their money to a dubious scheme.
The list is published online every two weeks and comprises more than 1,800 QROPS expat pensions offered across 28 countries.
The scheme managers self-certify their pensions meet QROPS rules so they can be listed and savers can only transfer pension cash to a listed scheme.
Many mistake this for HMRC approval of the schemes, but the list clearly points out: “This list contains pension schemes that have told HMRC that they meet the conditions to be a QROPS and have asked to be included on the list.
No guarantees from HMRC
“HMRC cannot guarantee these are QROPS or that any transfers to them will be free of UK tax. It’s your responsibility to find out if you must pay tax on any transfer of pension savings.
“HMRC will usually pursue any UK tax charges and interest for late payment arising from transfers to overseas entities that do not meet the QROPS requirements even when they appear on this list.”
Most schemes on the QROPS List operate professionally and above board, but HMRC suggests checking out the pension before transferring any money.
For expats, taking some time to choose the right international financial adviser is worthwhile.
The first point to remember is the rules for supervising financial advisers vary between countries and few are as tightly regulated as IFAs in the UK.
Seven tips for checking out an IFA
If you are an expat looking for an IFA, here are some basic checks, but don’t forget that most advisers are honest and reliable with relatively few pulling off scams.
- Root out cold callers – Reputable IFAs do not solicit business by sending out emails or texts. Many scammers mock up letterheads and web sites to look slick and professional
- Check credentials – Scammers know they will be asked about their qualifications and will try to look bona fide. Always check qualifications and registrations with the body issuing the credentials to make sure they are correct
- Passport control – Within the European Union, advisers can passport their registration with a regulator – for instance, a UK IFA can transfer their British registration for giving investment advice to Spain. The local regulator – equivalent to the Financial Conduct Authority in the UK – should give a thumbs up or down
- Warning lists – Regulators keep a list of suspected scammers – here’s a link to the FCA warning list and the broader European and worldwide IOSCO rogue adviser listing. Check the lists to verify your adviser
- Google your adviser – An internet search can quickly throw up reviews and information about an adviser
- Testimonials – Take them with a pinch of salt. It’s easy to line up friends or relatives to say something good
- Keep tabs on your cash – Take advice but do not hand control of your money to anyone you do not trust. That way, no one can access your savings or bank account without permission
The list is certainly not exhaustive, but offers a starting point for beating the scammers, who are likely to melt away when they realise you are carrying out serious due diligence before committing to doing any business with them.