In October 2016, we reported that the DWP had issued a call for evidence on how the advice requirement was working for members who are resident or moving overseas, and whether it should be changed to work better for them. The Government has now published its response to that call for evidence.
The advice requirement
Since April 2015, pension scheme members who have safeguarded (usually final salary) pension benefits worth more than £30,000 have been required to take advice from an FCA-authorised adviser before transferring their benefits to another scheme.
This requirement has caused some headaches where a member is resident overseas, or is moving overseas, and wants to transfer UK pension benefits to a Qualifying Recognised Overseas Pension Scheme (QROPS). Whilst an FCA-authorised adviser will be able to complete the necessary transfer analysis, they will not usually be in a position to advise on local tax and/or pension rules. As a result, a member will usually need to ask and pay for advice from two advisers: an FCA-authorised adviser; and an overseas adviser. This increases the cost to the member. It can also make it more difficult to find an adviser.
2016 call for evidence
The 2016 call for evidence asked for views on three main options:
- leaving the advice requirement as it is;
- removing it for overseas transfers; or
- replacing it with a requirement to seek advice from a local overseas adviser.
The government's response
The government published its response to the call for evidence earlier today (27 March 2018). The response says that the "Government considers that the advice requirement as applied to overseas transfers is largely working and does not require an easement". Although it has its difficulties, the current system ensures that members have access to advice given by an FCA regulated adviser. It also ensures they have access to redress via the Financial Ombudsman Service and Financial Services Compensation Scheme where necessary. Removing the advice requirement for overseas transfers, or replacing it with a requirement to take advice from a local overseas adviser, would remove these protections.
Osborne Clarke comment
The government's decision not to make any change to the advice requirement reflects concern that removing or replacing it could reduce the level of member protection and increase the risk of scam activity. In a world where access to suitable transfer advice and clamping down on pension scams are critical issues, this feels like the right decision.
Trustees and scheme administrators should note the government's response and that the current advice requirement will continue to apply.
In addition, the FCA has confirmed that it is making changes to the rules for advice on the transfer of safeguarded benefits. These changes, which are discussed in FCA Policy Statement 18/6, will help to ensure that the advice received from the FCA-authorised adviser ties closely to the advice from the overseas adviser to provide a member with a complete picture.