From now on, only advisors regulated by the Financial Conduct Authority will be able to offer advice on the transfer of defined benefit pension schemes into Qualifying Recognised Overseas Pension Schemes (QROPS). Compliance Matters interviews the head of deVere Group about why he thinks that this is a good thing.

The new, tougher
regulations and guidelines announced yesterday for the United
Kingdom’s pension transfer market have come in for much approbation
from Nigel Green, the founder of the global pension transfer firm of
deVere Group. From now on, only advisors regulated by the Financial
Conduct Authority will be able to offer advice on the transfer of
defined benefit pension schemes into Qualifying Recognised Overseas
Pension Schemes (QROPS).

 

The
'professionalisation' of advice

 

A recent review that
the FCA commissioned, which took in nearly 300 cases from bulk
pension transfer advice exercises between 2008 and 2012, unearthed “a
risk of customers losing out on retirement income due to poor
advice.” Green, who answered Compliance Matters' questions by
email, agreed with it on the grounds that the concept of
“professionalism” must continue to gain ground in the sector.

 

“We champion the
revised QROPS guidelines that insist that a client’s tax position
and risk appetite, amongst other factors, are fully assessed; and
that schemes that are substantially underfunded will have the right
to refuse transfers. The clampdown will, without doubt, strengthen
the sector for all its concerned,” he said. His answers to our
questions are below.

 

Q1. What's the
angle here for high-net-worth (HNW) clients?

 

A: HNW clients are,
typically, financially 'savvy' individuals who are aware of the need
for tax efficiency – perhaps largely because their tax burden could
be extremely high – and investment flexibility and control in order
to achieve their long-term financial goals. Therefore, if they
reside overseas, or are planning to move out of Britain, it often
makes sense for them to consider QROPS as part of their personal
finance strategy. Whether QROPS are an option or not will,
ultimately, depend on where they want to retire.

 

Q2. Who organises
QROPS for HNWs?

 

A: It is highly
recommended that an independent financial advisor with cross-border
expertise and QROPS experience should organise pension transfers.

 

Since the Treasury
announcement this week, only FCA-licensed advisors will be able to
give advice about the transfer of British pensions to other
jurisdictions. To my mind, this makes perfect sense.

 

This will clearly
result in more compliance procedures for firms such as deVere Group,
which offers QROPS and has an FCA licence in the UK, but I believe
that it will inevitably drive up the quality of advice, improve
standards in the wider financial services industry, protect clients
more effectively from sharp practice, make advisors more accountable,
and mature the sector further.

 

Q3. What did
George Osborne, the Chancellor of the Exchequer in the UK, do to
promote QROPS recently?

 

A: It is not quite
‘promotion,’ but rather that the FCA, amongst others, has been
working diligently to shore up the industry by making up tougher
rules and regulations and scrutinising more schemes, as well as the
firms that promote them. This is something we support as it is of
benefit to all stakeholders, including the clients and advisers, as
it is bound to make the sector grow in the long term.

 

Q4. How many
schemes are there? Are any coming off the list and, if so, where and
why? Is the list still growing?

 

A: The number of
QROPS has hit yet another new high with 3,416 on the latest HMRC
list. The number of pensions tops the previous high of 3,405 QROPS
listed on 1st June 2014. There are 42 financial jurisdictions
currently represented. This list seems likely to grow longer as the
industry becomes more robust and demand for QROPS continues to soar
as more clients become aware of their associated benefits. On the
latest list, two schemes were removed – one in South Africa and one
in Trinidad and Tobago.

 

Q5. How old is
the concept of QROPS?

 

A: HMRC established
the concept of QROPS in April 2006.

 

Q6. What hoops
does one have to jump through to get HMRC to say 'yes' to a QROPS? Is
there leeway?

 

A: Each scheme into
which we transfer a pension has to be recognised by HMRC. There is a
specific, and increasingly stringent, set of criteria for every
scheme to adhere to, should it wish to become an HMRC-recognised
QROPS.

 

Q7. 200 schemes
migrated from Guernsey to Malta in 2012. What happened there?

 

A: In 2012, HMRC
guidance notes banned jurisdictions, including Guernsey, from
changing local laws to allow residents to be taxed differently from
non-residents.

 

Q8. Is there
anything else to say about the offshore angle to the phenomenon?

 

A: It is a
phenomenon that is, without doubt, on an upward trend. This is
largely because the world is becoming increasingly globalised. As a
result, people are living, working and retiring abroad more than
ever. Because of this, demand for pension transfers will continue to
soar.

 

Editor's note: A
matter of faith

 

As with the US
Foreign Account Tax Compliance Act regime, the concept of 'good
faith' has crept into the QROPS regime. Scheme lawyers or other
advisors must tell HMRC if their scheme no longer qualifies for the
classification and sometimes they might hold on for too long before
doing so. As long as they do so inadvertently, HMRC offers them a
'safe harbour'. Its rules state: “Where the scheme administrator
has relied on the fact that the overseas pension scheme is included
on the latest published list (and can demonstrate if required that it
checked the list no more than one day before the transfer was made)
and did so in good faith, this should normally provide just and
reasonable grounds for HMRC to discharge any liability of the scheme
administrator to the scheme sanction charge.”

 

The FATCA 'good
faith' concept appeared recently and very quietly in a US Treasury
side-note and, according to some, threatens to undermine the entire
regime. Notice 2014-33 of 2nd May states that the Internal Revenue
Service “will take into account” the extent to which certain
parties, such as foreign financial institutions and withholding
agents, have made "good faith efforts" to comply with their
obligations. It does not attempt to define this phrase, which it
later couches as "reasonable efforts." Neither does it
elaborate on the "relief from IRS enforcement during the
transition period" which it promises to such people. HMRC's
'good faith' clause is in the same vague vein, although its QROPS
regime does not rely on the credibility of international threats in
the same way that the FATCA regime does.