These new rules have been on the books for a while now with the Financial Conduct Authority (FCA) looking to take action on the pension transfer market and it has got a lot stricter over the years.
With the new regulations, it has got harder to transfer Final Salary pensions or Defined Benefit pensions, this was brought on by the regulator as mis-sold transfers. I see this as a good and bad point personally. Just this week I had a client that I took over his policy that had lost 80,000 GBP in his pension fund because he had been misadvised and has now lost all but his funds on the transfer. This is the same with countless pension transfers in the expat and U.K market. Advisors have been ill-qualified and showed a distinct lack of care towards their clients and acted more like salespeople rather than having the client best interests.
This client has now lost a part of their pension which they entrusted with the advisor to help it make it grow so they could have a better and easier life in the future, however, poor advisors only see the commission or they are just too stupid to see a bad investment. I think it the first option; commission.
However, this is great news for clients and investors, less will get tricked out of their life savings by some scripted pitch that charge as high as 17% for the transfer. This is a good thing!
However, at the same time, I do see it as a negative, and here are my reasons. I have personally reviewed with my team and partners that I work with (that hold the relevant qualifications) 3 defined benefit or final salary pensions as of January 2021 for the year so far and the compliance has been challenging and slow to act swiftly and effectively for the client that has cost the client extra in reports and more CETV (Cash Equivalent Transfer Value) packs.
For some expats, it makes sense to transfer their final salary pension(s) as the multiples are so high or have more than enough wealth to look after themself and their family for the rest of their life and just want to take the cash and invest the rest of their pension as they see fit.
This is where it can be frustrating because even though they can live comfortably without the pension they have a lot of work to do to transfer it out if they want to invest it. Also, I have had clients want to go into certain funds or investment trusts for a specific reason and the regulators don’t allow it because the investment is not deemed suitable.
I am on the side of the regulators and believe it’s a great thing that this has been imposed, however, some common sense ultimately needs to prevail.
What Are The New Final Salary Transfer Rules
Last October advisers were barred from providing defined benefit pension transfer advice using the contingent fee model, where they were only paid if the client decided to go ahead with a transfer recommendation. The Financial Conduct Authority acted after becoming concerned the contingent fee model was incentivising advisers to persuade their clients to transfer, a move the FCA did not regard to be in the best interests of most people.
The FCA, stated that 30 Billion worth of transfers were made between October 2018- October 2020.
Stating that there is a need to take action on these salesman getting rich off the transfers of these final salary pensions.
What Does This Mean if You Are an Expat?
Go back 5 years and many expats were being put into bonds, RL360, FPI, OMI and these were charging 7% and caught expats eyes on the fact that they could roll over into a QROPs or International SIPP, take a potentially larger lump sum and have investment freedom and be tax efficient. What mostly got missed is the 7% upfront and 3-5% a year to run (anyone in these products should seek help immediately). I have seen next to none beat inflation and have come across many paying up to 5% a year in fees. Now in the offshore market, you have to only charge on the platforms, this can still be high but with some of the good platforms, it is more of an investment than a cost, unlike the 5% a year. Read my blogs on offshore platforms. It can be 0.7% with funds 1% so you could be paying 1-1.5% a year with advisor fees that are not too bad when you compare it to the U.K market that costs around 1%-2% on average for a pension transfer with ongoing fees.
Ultimately, this is a good act for a lot of pensioners and we will see less unnecessary transfers taking place just because there is commission involved.
If you do want to know more about pensions, pension transfers and platforms I have written a number of blogs on my site, you can read all my pension articles here: Pension Articles
