Has Your UK Pension Transfer Been Blocked?
Does your expat financial advisor firm have both a MiFID and a pensions licence? Thousands of expats still have defined contribution pensions in the UK, and more than ever are now being told by their pension provider that they need to transfer to another scheme. The reasons, often Brexit induced, range from not being able to allow access to capital or not even permitting fund switches, leaving the pension exposed to underperformance and the scheme member potentially without capital.
Some schemes don’t see living overseas as an issue and there is no hard and fast rule as to why. But what this means for those who are told to transfer, is that they can’t go online and switch between schemes themselves as they can in the UK, as usually only UK residents can open a new UK pension scheme.
So What Can You Do?
This scenario puts expats in the difficult and unfair position of either choosing to leave their pension scheme inaccessible and unmanaged (not really a choice unless you plan to repatriate), or paying for pension transfer advice from a suitably regulated firm. In addition to the additional expense, this can create another obstacle as finding an advisor with the correct permissions to ensure you get the best possible advice and investor protection can be difficult to find, so always be very thorough when doing your due-diligence on potential firms.
The biggest frustration for expats is that having been told to transfer out by their provider and seeking advice, the same schemes then cause further delays at the point of transfer by introducing additional criteria that needs satisfying before moving forward. Whilst we approve of and encourage some of these steps, such as Moneyhelper, Pension Wise meetings and due-diligence calls, the lack of understanding of the overseas market by your existing provider can result in the transfer being blocked, leaving you frustrated and your advisor doing a significant amount of work, all for nothing.
What Your Scheme Might Want To See
If a UK provider requests a due-diligence call with you, it will be to confirm you understand the difference between the regulatory protection you might receive in the UK, and that provided (if you are in Europe for example) by MiFID (Markets in Financial Instruments Directive), the regulatory regime your advisor should be operating under. Again, we encourage these steps and this information should be included in any investment suitability report provided by your advisor. However, some of the criteria that ceding schemes are suggesting you seek clarification on are often misleading and inaccurate, and this could stop your transfer going ahead.
For example, the scheme you are transferring to may be an ‘international SIPP’. The word ‘international’ often raises red flags in the UK and classifies it as an overseas pension scheme. This isn't the case, an ‘international SIPP’ is actually a UK SIPP that adheres to all of the standards your existing scheme does. Any differences are usually positive, including the ability to invest in currencies other than sterling, and a client support team that understands the nuances of being an expat with a pension. Once explained to your provider, it may be satisfied and any red flag removed.
Other reasons transfers are being challenged include underlying investments also being classed as ‘overseas’. These securities may be funds domiciled in Luxembourg, a highly regulated and well-established fund jurisdiction and since Brexit, ‘overseas' could also include Ireland, one of the world's leading investment centres for low-cost ETF’s, created by the same institutions that your existing scheme will more than likely be using in the UK. Again, your existing provider will hopefully see sense when evidence is provided.
Using The Right Advisors
Most importantly, UK schemes often want to check the pedigree of the financial advisory firm you are using. Most advisory firms advising expats in Europe should be MiFID regulated, a licence permitting the passporting of advice across the EU which is usually issued by one country’s regulator. It is important to remember that MiFID does not cover pensions, so in addition to UK schemes now requesting a copy of the suitability report your advisor provided, they may also require evidence that the advising firm has a pensions licence in their ‘home’ state where their MiFID licence was issued.
The vast majority of expat advisory firms lack this status so if you are considering a pension transfer, it is vital that you engage with an advisor that can evidence the necessary credentials to give you both the best levels of investor protection and every chance of a successful transfer. Notwithstanding that we believe most expats would prefer to work a firm that has gone to significant lengths and cost to demonstrate its expertise, getting fully authorised to give pension advice in their home state.
If you would like to discuss transferring your pension with a firm possessing both MiFID and pension licences, and all of the credentials to give you the best levels of advice and protection, get in touch today and we’ll show you how it’s done.