Challenges of pension transfers

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1 Challenges of pension transfers Overseas transfers and pension scams Ben Clacker, APMI Associate and Administration Manager Lee Moyle, DipPMI Team Leader

2 Contents Overseas transfers: 2015 & 2017 changes Pension scam case studies Pension scam consultation Conclusions 2

3 Overseas transfers April 2015 changes Removal of schemes not meeting minimum age access requirements Rebranding of list - Recognised Overseas Pension Schemes (ROPS) instead of Qualifying Recognised Overseas Pensions (QROPS) Removal of good faith protection 3

4 Overseas Transfers Analysis Requirements for recognised transfer S169(1)(b) FA2004 What does ROPS list tell us? HMRC newsletter 71 What will HMRC not tell us? HMRC Newsletter 72 Validation of requests responsibility of trustees! Penalties and sanction charges 4

5 Budget 2017 changes 1 2 Overseas Transfer Charge Revised ROPS list 5

6 Overseas Transfer Our approach Significant due diligence required - HMRC will not confirm what they expect! Administrators and trustees must decide what documents must be reviewed Engage with trustees! 6

7 Pension scam case studies 1 2 Unregulated Unregulated adviser agents and overseas property tame IFAs development 3 4 Passporting of services Status as from European occupational Economic Area (EEA) scheme and high charges 7

8 Unregulated agents and tame IFAs FOS ruling (ref: DRN ) June 2016 Background: Transfer to SIPP to invest in Caribbean hotel development Unregulated agent advised on investment Regulated adviser recommended SIPP provider SIPP invested 48,000 in development Two years later unbuilt hotel room valued at 1 Complaint made but adviser claimed agent responsible 8

9 Verdict COBS COBS COBS Adviser did not give appropriate advice required adviser to act honestly, fairly and professionally in accordance with the best interests of its client required adviser to obtain the necessary information about the client s knowledge and experience adviser should check transfer met client s investment objectives, he could bear the risks involved, and that he understood the risks 9

10 Verdict Financial Ombudsman The comparison between adviser and the agent though isn t a fair one. The agent isn t a regulated adviser. We have no jurisdiction over it. It is hugely significant that [the adviser] is. It brings a privilege to advise on pension transfers.. [The adviser] had a regulated duty to give suitable advice but didn t. FCA alert 2 August

11 Why is this ruling significant? Pension Schemes Act 1993 s99(2a(b)) Trustees are released from their statutory duty to pay transfer if: the trustees or managers have carried out the check required by section 48 of the Pension Schemes Act 2015 but the check did not confirm that the member had received appropriate independent advice COBS 19.1 FCA rules regarding transfer or conversion of safeguarded benefits 11

12 Unregulated adviser Overseas property development Common features: Cold calling and aggressive sales Client encouraged to sign declaration Adviser wholly owned by overseas property developer Latest filed accounts describe principal activity as overseas property investment sales 7% return but only during construction 12

13 Engage with member Was it a cold call? Professional advisers are unlikely to cold call Were papers couriered to them for signing? Are they aware of the consequences of taking unregulated advice on pensions transfers? Have they seen the alerts issued by Action Fraud? Recommend they obtain regulated financial advice! 13

14 Status as an occupational scheme Features of scheme: Accounts show no contributions, only transfers in Purpose of scheme described as vehicle to invest in named manager Membership restriction Lack of investment diversification Pre-emptive transfer applications 14

15 Occupational scheme analysis Statutory transfer must be to a type of scheme defined in s95 PSA1993 Pi Consulting v The Pensions Regulator - Purpose issue and Founder issue Occupational Pension Schemes (Investment) Regulations 2005 need for diversification of investments even if scheme falls under small scheme exemptions 15

16 Passporting of services from EEA Advisers operating in EEA countries passporting services to UK FCA registration number but not regulated by FCA Movement from country to country struck off in Spain further Spanish regulatory warning operating under different name move to Cyprus 16

17 Excessive Charges S164 FA2004 recognised transfer must be used..for the purposes of, or to represent rights under another registered pension scheme. Pensions Ombudsman determination (PO-1837 para 91): amount of transfer spent on introducer and other fees= inconsistent with recognised transfer Reasonable basis to refuse transfer where excessive fees would be incurred Excessive not defined freedom to make judgement call 17

18 Current Developments Pension scams: consultation 5 December 2016 to 13 February 2017 Proposed introduction of three measures: 1 Ban on cold calling in relation to pensions 2 Limiting the statutory right to transfer to some occupational pension schemes 3 Making it harder for fraudsters to open small pension schemes 18

19 Ban on cold calling Ban on all cold calls in relation to pensions - to be achieved through primary legislation Message to consumers that cold calls = fraud Information Commissioner s Office: powers to impose civil sanctions fines up to 500,000 19

20 Limitations 1 2 s and texts Ban on cold currently not in calling only scope although effective question is against UK raised in based consultation operations document 20

21 Limit on statutory transfers Statutory right to a transfer would exist only where: the receiving scheme is an FCA authorised personal pension scheme employment link to the receiving occupational pension scheme earnings employer participation the receiving occupational pension scheme is an authorised master trust 21

22 Making it harder to open fraudulent schemes Only active (non-dormant) companies can be used to register occupational schemes To be enforced through HMRCs scheme registration process 22

23 Conclusions Onus on administrators: Transfers are difficult! Trustees need to understand responsibilities culture of awareness focus on quality robust procedures escalation mechanism engage with trustees engage with members most powerful tool liberation tourism We all have a moral duty to get this right! 23

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25 Regulatory Information The information in this presentation is based on our understanding of current taxation law, proposed legislation and HM Revenue & Customs practice, which may be subject to future variation. This presentation is not intended to provide and must not be construed as regulated investment advice. Returns are not guaranteed and the value of investments may go down as well as up. Barnett Waddingham LLP is a limited liability partnership registered in England and Wales. Registered Number OC Registered Office: Cheapside House, 138 Cheapside, London, EC2V 6BW Barnett Waddingham LLP is authorised and regulated by the Financial Conduct Authority and is licensed by the Institute and Faculty of Actuaries for a range of investment business activities. 25

26 Hot Topic Panel Discussion Hosted by Tom Meyrick, Eversheds Sutherland Gerald Wellesley, HR Trustee Solutions Robert Hawkes, Barnett Waddingham LLP Georgina Rankin, Eversheds Sutherland

27 PMI Midlands Annual Half-Day Conference Q&A Hot Topics Panel Discussion Scenario Frozen DB pension scheme a sizeable deficit A long recovery plan with limited cash flow Valuation with March 2017 effective date An existing buy-in policy in place Regular payments of dividends Agenda 1. DB investment considerations 2. Actuarial valuations and approach to funding 3. What changes could the Government be planning in the future?

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29 Thank you for attending the PMI Midlands Conference entitled Facing The Challenges sponsored by Gateley Plc. Your views are very important to us and will help us in planning any future events we hold. You will shortly be receiving an with a link to a brief survey and we would be very grateful if you could take a few moments to complete it. A copy of today s slides will be available on the PMI Midlands section of The Pensions Management Institute website. Thank you Andy Greig Chairperson PMI Midlands Sponsored by