UK Pension Transfers and Unethical Advice Behaviours to be Aware of

When obtaining UK pension transfer advice, it is important to understand that the overseas pension transfer market attracts all types of advisers. Some are regulated in locations with strong regulatory oversight (where qualifications and expertise are essential), but many are based in countries where regulation is light or non-existent. The quality and cost of advice, as well as client protection, varies markedly.

In an attempt to fix the problem in 2015, the UK Government introduced legislation, ruling that all advice on transfers with “Safeguarded Benefits” over £30,000, must be provided by FCA Regulated Firms. This includes all Defined Benefit Schemes.

Unfortunately, for non-UK residents, the legislation has not had the full impact the FCA intended, as some advisers, especially many that operate outside of Australia and the UK, have looked at ways to get around it.

This includes:

  • Getting FCA firms to provide an ‘Appropriate Pension Transfer Analysis’ (effectively a tick-the-box exercise).
    Note: In properly assessing the suitability of a transfer, this analysis comprises only one small part of the overall process.
  • Some larger offshore firms have a small UK presence and are using this firm to ‘sign off’ that UK advice has been provided, in effect acting as a conduit for the overseas firm to give commission-based and unregulated investment advice. These firms tend not to be around long, but individuals often appear under a new company not long after.

In our experience, the unethical companies finding the loopholes often display some similarities in behaviour which can result in very poor transfer outcomes. This includes:

  • Advice companies having offices in less regulated locations such as Hong Kong or United Arab Emirates.

  • Overseas companies partnering with UK equivalent firms that are a further incarnation or offshoot of a company that has previously been closed (a search on the FCA Register of company and individual can help in finding this out).

  • If the UK firm’s sole purpose is to prove (sign-off on) pension transfer advice, while the investment advice is to be provided by a company not regulated in the UK or Australia.

  • When the UK element of the advice is described as ‘just a formality’ or similar.

  • When you are told that you do not need to meet the UK adviser.

  • You are not provided with an ‘Independent Guide to Defined Benefit Transfers’ (normally a video) prior to your meeting with the adviser.

  • Where the advice to transfer is ‘negative’ but the adviser insists you should transfer anyway.

  • Where the advice is to transfer out of a Defined Benefit Plan, however there is no intention of ever moving funds to Australia.

  • If you are told you can transfer your funds to a UK Self-Invested Personal Pension (SIPP), withdraw them in full, then document to HMRC that the withdrawal is income under the Double Tax Treaty and to the Australian Tax Office (ATO) that it is a lump sum payment not subject to income taxes.
  • For transfers to a UK SIPP, the pension scheme is not on the Origo system and/or has the word ‘International’ in its name. For a pension scheme to be on the Origo system it has to pass a high level of due diligence.
  • The UK adviser has not received the Pension Transfer Gold Standard.
  • If the fee for pension transfer advice (especially Defined Benefit advice) is surprisingly low. This may suggest that there is a large commission payable on a product (often an Offshore Life Assurance Bond) or unregulated funds, both of which can cause huge problems including large ongoing costs, exit penalties and unsuitable and risky investments.
  • If you have been cold-called or have not been referred to the adviser by a trusted source.