Transferring a Defined Benefit Pension Scheme to a QROPS
The Financial Conduct Authority (FCA) have written a report concerning transfers of final salary pension schemes abroad.
In the 58 page report, PS 18/20, regarding safeguarded benefits on 4th October, 2018, Christopher Woolard, FCA’s Executive Director of Strategy and Competition said:
“These new rules will mean advisers have greater certainty and confidence in what we expect when they offer pension transfer advice.
“We expect our interventions to improve the quality of advice which will help to reduce the number of complaints against advisory firms. We will measure consumer outcomes through our supervisory work.”
“Any changes to our rules on contingent charging could have implications for the supply of advice. Because of the significance of this issue to all stakeholders in the market, we will carry out further analysis and consult on new interventions if appropriate in the first half of next year.”
HMRC are discouraging final salary defined benefit pension schemes from being transferred to defined contribution pension schemes, even if members are moving overseas and it is written all over the report. This is because final salary pension schemes give clients a guaranteed income for life which usually rises in line with inflation along with other safeguarded benefits.
Although, there can be reasons for transferring your final salary pension scheme abroad including ill health, inheritance planning and currency planning issues.
Further Highlights in the Report
New pension guidance in report PS 18/20 following on from PS 18/7. Here are some highlights.
“Defined Benefit (DB) pensions, and other safeguarded benefits involving guaranteed income, provide valuable benefits. Most consumers will be best advised to keep them. There is potential for significant consumer harm if consumers who are considering giving up these benefits are given unsuitable advice. ”
“Since the introduction of pension freedoms in 2015, there has been a considerable increase in the demand for pension transfer advice and in the volume of actual transfers”
“While most consumers will be best advised to keep their DB pensions and other safeguarded benefits, we recognise that the pensions environment has changed. This is particularly the case since the pension freedoms gave consumers with Defined Contribution (DC) pensions more options to access their pension savings. As a result, there has been an increased demand for pension transfer advice, as advice is mandatory under government legislation for potential transfers valued at more than £30,000.”
“Over 6 million people are eligible to transfer deferred benefits out of DB schemes. Transfer values have been at record high levels since 2016, with employee benefit consultancies reporting the average size of transfer at over £250,000. In the Cost Benefit Analysis (CBA) in CP18/7, we estimated that 100,000 members are transferring out of their DB scheme each year”
“We expect fewer complaints against advisory firms and fewer customers becoming the victims of pension scams. We have continued our work on preventing pension scams, including scams involving pension transfer advice, and we recently updated our ScamSmart website pages”.
Transferring a Defined Contribution Scheme Abroad
For defined contribution scheme transfers, please contact us for more information.