Guaranteed Benefit Pension Transfers to QROPS and SIPPs
There has been a leap in requests for final salary reviews and pension transfers to QROPS and SIPPs, driven by the high transfer values on offer, and marketing (mostly overseas).
In conjunction with this increased demand for pension transfers to QROPS and SIPPs from final salary schemes or pensions with guaranteed benefits, there has been a significant increase in the number of UK FCA registered firms that have had their permissions suspended for this type of business.
At this stage it is not entirely certain what has led to most of these suspensions, although there is considerable comment focusing on one reason that may have led to these suspensions, and it is interesting to note that many of the firms whose name have been published in such magazines, such as International Adviser, have direct links with overseas or expat advice.
Defined Benefit Pension Transfers to QROPS and SIPPs – Sign offs
The requirements placed onto a UK FCA regulated IFA to conduct pension transfer business are quite onerous- requiring staff with specific pension qualifications, additional registration for that permission and far higher PI costs for this higher risk category of advice.
It is not surprising that many firms in the UK either choose not to apply for this permission or simply do not have the resources and qualifications to do so. Of course, non-UK firms cannot have this permission unless they establish a UK FCA registered office with qualified staff and all the regulatory permissions. Some have done this only to be requested to cease business!
Nevertheless, firms (both UK and non-UK) will come across clients with final salary pensions (defined benefit pension) or guaranteed benefits that want advice on their pensions. However, best advice is still to consider the guarantees offered cannot be bettered via a pension transfer to QROPS and SIPPs. We fully appreciate that there are circumstances where a client should consider transferring and in these cases the non-qualified advice firms with the client will need to approach a UK regulated firms to provide the advice.
This is where, in some cases, it appears something has gone awry. The reason, from comments in the media and FCA updates, appears to be related to the fact that the UK adviser provides an initial analysis- which may or may not recommend a transfer- and then signs a letter to the trustees to say that the pension member took advice which merely removes responsibility from the trustee.
( Update- there was a comment about this blog by Kevin Neil of Lift Financial who said “The “sign-off” to which you refer in the blog is merely a requirement of TPR on DB schemes to ensure that members who are required to take advice on safeguarded pension rights (as defined in the law) have actually taken relevant advice from a suitably qualified and regulated individual.”
I should make it clear that I am referring to firms that do not actually provide pensions advice, but merely outline the pros and cons without making a recommendation. Some firms have then allowed a client to be “insistent” and let the client decide for themselves removing, in the firm’s view, all the protections afforded by regulation.)
However, it seems that the UK adviser is then no longer involved in the actual transfer especially if moved to a QROPS, and the basis of transfer and investment advice does not follow the original assumptions. Indeed, from many forums where disgruntled clients post, the actual investments may be more expensive, higher risk, not regulated, illiquid or otherwise inappropriate – making the original transfer information or assumptions from the UK regulated firm irrelevant, and leaving the client with a potentially far worse outcome than was anticipated at original recommendation (if there was a recommendation).
We have seen cases where UK FCA registered firms have provided the required sign off , with the clients then being recommended expensive offshore insurance bond wrappers . This is merely facilitating poor practice and surely falls well short of the TCF rules the FCA expect to see applied to client advice.
Whatever profession you are in, you need clients and client retention is important to any professional practice, be they accountants, lawyers, IFAs, banks and so on.
No one wants to give away a client but then, if we consider that the UK FCA firm must provide the advice, it leaves the non-pension regulated adviser firm with a problem. But I am not sure it really is a problem if the structure is set up correctly.
If we consider a GP in medical practice, there is an analogy here. The patient has a problem that requires a specialist and so the client is referred. The specialist doctor deals with the ailment and provides the advice for the treatment , but the client still remains on the GP register and does not become a permanent patient of the specialist for other ailments.
A non-pension regulated IFA can pass a client to the UK transfer specialist. If a transfer is not recommended it should stop there! The client is handed back to the original firm.
If the transfer does proceed, the UK IFA must be involved in the transaction with full overview of the investment recommendation and should be the firm making those investment recommendations.
For all other business the client remains the client of the original firm and, of course, the two firms can come to a suitable and transparent commercial arrangement for this, with the permission of the client.
At Tailormade, our UK advisers will not provide a sign off service for other firms advisers under any circumstances. We treat clients overseas with the same procedures, advice and reports that UK resident clients pay for. Significantly, we also provide our award winning investment service to all clients and do not allow overseas advisers to invest into non-regulated or unapproved funds or products. Our group is regulated in over 35 countries including the USA, the UK and South Africa amongst others, and we have offices in other countries that report direct to local regulators; such as Ireland and other EU countries.
END: Guaranteed Benefit Pension Transfers to QROPS and SIPPs
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 6th July 2017 and updated 7 July 2017 due to multiple comments.
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