Ex-pat pension savers are open to the risk of inappropriate pension transfers because of rules forcing them to take advice from a UK IFA, the Government has warned.
Since the introduction of the pension freedoms, anyone with safeguarded pension benefits greater than £30,000 must take advice before transferring.
In a consultation paper today, the Department for Work and Pensions says it recognises concerns over how the requirement is affecting individuals who want to transfer to a non-UK pension scheme because they are resident outside the UK or moving overseas on retirement.
The paper says UK advisers may not be willing or able to give advice on an overseas transfers, exposing savers to “unnecessary risk”.
The DWP says: “UK financial advisers may not wish, or be able, to offer this form of specialised transfer service covering the tax and pension rules of the member’s country of residence.
“The result is members resident overseas with safeguarded pension benefits may be financially disadvantaged by having to seek two separate sets of advice, one to meet the conditions of the new advice safeguard requirement and another from a local overseas adviser to advise on issues relating to the transfer overseas, such as tax implications or timing of the transfer to minimise the impact of currency fluctuations.
“The member may also be exposed to unnecessary risk because advice is taken in two different jurisdictions, with the result that it is not clear how the member should seek recompense in event of a poor outcome as a result of the advice.”
According to the DWP, there are around 700,000 ex-pats with defined benefit pensions not yet in payment, and the number with other safeguarded benefits could be far higher.
The DWP is consulting on a number of options, including a set of minimum standards for overseas advisers, refining residency criteria to establish when advice requirement needs to be met, and changing the financial redress that is available for those transferring their pensions overseas.
However, it says removing the advice requirement entirely for members now resident overseas could have negative consequences.
It says: “Removing the requirement to take regulated financial advice increases the risk of a member deciding to make an unsuitable transfer to an overseas scheme.
“Indeed this might be perceived as a perverse outcome, as it would mean that a member potentially incurring additional tax charges in addition to surrendering valuable benefits would receive less advice on the implications of making this decision than a member than transferring their benefits to a defined contribution scheme in the UK.”