What you should know about Defined Benefits Pensions Advice
If you are reading this then you have what is called a Defined Benefits pension or Final Salary pension linked to a British company and you are seeking Defined Benefits pension advice.
It does not matter whether you live in the UK still, are planning to move or live outside the UK in places such as the EU, USA or elsewhere. The fact is you can only receive Final Salary or Defined Benefits pension advice from a British regulated firm operating under the Financial Conduct Authority (FCA).
This is key, as much misselling and fraud has been carried out by recommending ill-advised transfers from these schemes by unregulated firms from all over the world purporting to give Final Salary or Defined Benefits pension advice. In these cases the usual outcome is advice to transfer away from a guaranteed income for life into high risk and expensive investments. In the past they just co-operated with willing SIPP providers or QROPS providers, but now they work with some unscrupulous firms that they often have financial interest in the UK itself.
The first warning should be that the FCA’s (the UK regulator) starting point on such advice is that it is often best to retain a guaranteed scheme rather than seek to transfer it. This is based on sound financial planning as well as all these past fraudulent transfers, ie best advice to keep a guarantee rather than risk a transfer that may lead to a lower income in retirement if investment performance is not as promised or expected.
FREE OFFER: If you are unsure, contact us and we will do a spot check on your behalf for free of the people who are providing you with advice. Five minutes spent checking your adviser out could save you a spending retirement contemplating loss!
What is a Defined Benefit scheme (Also called Final Salary Pension)
A Defined Benefits pension provides a guaranteed pension at retirement based on years of service and salary. There is the option to take the benefits early, with an actuarial reduction and also part of the pension can be commuted for a Pension Commencement Lump Sum.
There is also an option to forego any guarantees and obtain a Cash Equivalent Transfer Value and move the pension to a UK pension (usually a SIPP for those outsider of the UK) or a QROPS.
1. Who should you ONLY seek advice from?
Before engaging with an adviser for advice about your Defined Benefits pension you may want to ask the adviser (especially if it is an expatriate adviser) a few questions-
- Does your PI cover (insurance) specifically cover British pensions’ advice (for example some in the European Union do NOT cover pensions from other countries)?
- Is your company regulated to give advice on Defined Benefits at all?
- Is the company that you work alongside under investigation by the FCA for working with non-regulated introducers (expatriate advisers based outside the UK are defined as non-regulated introducers by the FCA).
2. Why should you ask these questions of your adviser?
If the CETV is £30,000 or above, only a UK regulated adviser firm with FCA pension transfer permissions is able to advise you. There are less than 1,200 firms in the UK with this specialist qualification. Very few companies, that operate outside of the UK, have a UK FCA regulated office that can provide advice about your Defined Benefits pensions.-
3. How do firms that do not have this licence operate?
They have to refer you to a UK regulated adviser that is regulated to give this advice.
4. Are they independent or do they have a conflict of interest?
If the adviser you are dealing with does NOT hold the relevant authorisation to advise you, then they almost certainly have a conflict of interest. They only get paid if you transfer your Defined Benefit pension, and therefore they encourage you to transfer irrespective of what the regulated adviser in the UK recommends (read on for “insistent clients” later)
5. How are the UK advisers paid?
The days of a free review and recommendations are over. Now, a pension transfer specialist in the UK must provide you with an analysis and a firm recommendation- either to transfer or remain in the scheme. The cost of this advice must be the same, whether or not a transfer is recommended. Typically the charges range between £500 for an assessment through to £5,000 for a recommendation, but some charge a lot more.
6. Contingent Charging- What is that?
Contingent charging is a fee that is only paid when funds are invested. In other words, the adviser only gets paid if a recommendation to transfer is made. There is a danger of a conflict of interest here (see point (4) above) and so the FCA have banned contingent charging for Defined Benefits transfer advice for UK adviser regulated firms ONLY. The fees must not be contingent on a transfer and need to be paid if a transfer is not recommended. This is straightforward in the UK but the rules do allow for non-regulated introducers (who claim to be advisers) based in territories such as the EU or USA to charge an additional fee to invest the transferred funds after advice has been taken from a UK adviser. These fees are actually commissions and can be much higher than the transfer fee, and yet, they are actually doing very little (and sometimes nothing for this commission. Read on (7).
7. The role of the offshore adviser
- A non-UK adviser regulated overseas (non-regulated introducers in FCA terms) can arrange the investment of transferred funds after a recommendation has been made by the UK adviser- there will be an additional fee. The UK adviser must have taken into account the type of investments that would be recommended and the fees that the non-UK adviser will charge when making a recommendation to transfer.
- The actual work and responsibility is actually done by the UK regulated firm making the recommendation. However, some UK firms specifically aim to work with offshore advisers (almost collude) to give the impression that the offshore adviser is the clients adviser and needs to be paid to do (not a lot, process an application or make an investment recommendation only).
- The UK firm takes no responsibility for the actions of the adviser regulated overseas (non-regulated introducers in FCA terms) and the overseas regualted adviser takes no responsibility for the pension transfer advice.
- Point 7(c) leads to no-one actually being responsible for the client outcomes which means there is potential mis-selling still possible.
8. Insistent client
If the UK adviser has not recommended a transfer, this should really be the end of the process and many adviser firms since 2018 will not arrange a transfer. The FCA since 2018 has been clear that insistent clients should not be allowed to override what is potentially very significant pension advice. Further, an increasing number of UK SIPP pension providers since 2021 will expect to see a recommendation for a transfer or they will not accept the transfer.
However, this does not seem to stop some less than scrupulous offshore adviser firms ‘coach’ clients to become insistent and look for UK pension providers that will accept transfers, despite the regulated UK adviser’s report stating that a transfer is unsuitable. In such cases, it may be the case that a QROPS is recommended to avoid such scrutiny.
Please Note: If you are being “coached” to say or write things to obtain a transfer against advice you should REPORT this to the Financial Conduct Authority (FCA) in the UK and also to the UK firm offering the actual pension advice to transfer or not transfer.
The FCA have also since 2021 put in place a new Red and Amber Flag system from MoneyHelp.
9. MoneyHelp Red Flags
If a QROPS is recommended, if you cannot prove residency in the EU or, if outside the EU, outside of the EU in the same jurisdiction as the QROPS- it is likely that your UK pension provider will not allow the transfer (Red Flag). If you can prove residency in the EU (but not in the same country as the QROPS) then you may get an Amber Flag and you will need to scam guidance from the UK MoneyHelp Government Advice Service to help identify if there is a risk of a scam- however, this is not fullproof.
10. How do you avoid being scammed or "cached" into taking an action that is not in your best interests?
You need to work with a firm in the UK, or the EU or the USA that has long term experience and a track record of working together of well over 5 years, ideally 10 years. Avoid start-ups or firms that have been in existence for less than 3 years at all costs – they could fail or be gone quickly and you will have no recourse in the future.
Make sure each part of the system you are being advised by has PII (insurance) to cover your advice, and make sure your actual adviser (not just his/her firm) is showing as registered for investment advice in the country that you live in.
Makes sure it is investment advice and not “insurance only” advice.
FREE OFFER: If you are unsure, contact us and we will do a spot check on your behalf for free.
What you really want though is Joined up Advice from one group or advisers who are multi-qualifed in the jurisdiction you live in and from the UK. There are very few – less than 200 in the world.
11. Joined up Advice
The Aisa Group have advisers in both the UK and the EU, qualified to both UK and EU standards. Who better to contact about your UK pensions and investment Post Brexit?
The firms Aisa Financial Planning and Aisa International operate under both regulatory setups separately and they use EU passporting within the EEA, whilst having all the qualifications and licences to give both defined benefits pensions and investment advice.
What is Triage?
Triage is a simple process, often completed online, where a Defined Benefits pension member can learn more about pension transfer advice, the fees and the risks before committing themselves to paying for advice.
A UK adviser may offered this at a modest fee, in the event that the pension member does not want to commit to a larger non-contingent fee and provides more limited information. Abridged Advice will not make a full recommendation or provide a TVC (Transfer Value Comparator) and there are two likely outcomes –
- Remain in the scheme as a transfer is not likely to be suitable or,
- State that there is insufficient information to make a recommendation.
At that point, the pension member would not want to commit to a full review and fee if it is known that a recommendation to remain in the scheme is likely.
What is a TVC (Transfer Value Comparator)
A TVC is a simplified comparison of benefits that forms part of APTA (Appropriate Pension Transfer Analysis). It compares the CETV being offered with the cost of purchasing a guaranteed income (annuity) in the open market that would match the income being given up by a transfer. In other words, it capitalises the value of the income to help the member better understand the value of the CETV.
What is an APTA?
Why is access to a group with access to a UK licence important?
UK pensions’ advice can sometimes be complex and access to all UK pension companies and advisers with UK pension qualifications will more likely ensure more comprehensive advice.
Is an investment licence important non-UK pensions advice?Yes. In fact having discretionary investment securities licences makes us almost unique, being able to offer award winning investment advice alongside the specialist pension advice.
For example, the UK establishment has defined benefit pension advice licences. Try and find another group in the EEA that has discretionary investment licences and the highest mark of pensions advice qualifications.
What about advice on UK pensions for residents in EU/EEA states going forward?
MiFID rules for the EU do not actually cover pensions at all- a myth further exploited by EU based advisers looking for business by moving UK pensions. In fact, given the UK requirement to achieve a professional level standard of qualifications it is far more likely that a UK based firm will be better placed to understand your UK pensions and advise you accordingly. For Defined Benefits pensions, it is mandatory for advice to be given if the CETV is over £30,000.
What is the Overseas Transfer Charge?
The OTC is a 25% charge on transfers from UK registered pensions to QROPS if the investor is not resident in the EU/EEA or not resident where the pension is being transferred to(there are different rules for offshore employer schemes)
Can I still pay into my UK pension if I live abroad?
You may be able to do this for up to 5 years but they would need to be to a pension you were already a member of before moving abroad. The amount will depend if you have relevant UK earnings or, if not, it is capped at £3,600 pa.
What if I access my UK pension and return to the UK, can I still pay into the pension?
You should be very careful about accessing your UK pension if your intention is to return to the UK and contribute in future. You may be restricted by the MPAA to £4,000 pa contributions.
Lifetime Allowance(LTA)- What is it?
There is a limit as to how much you can hold in a UK pension without being taxed on a transfer abroad or when you access the pension.
What is the LTA limit?
It is currently £1,073,100, though there are previous protections that may provide for a larger LTA.
FREE OFFER: If you are unsure, contact us and we will do a spot check on your behalf for free of the people who are providing you with advice.
Five minutes spent checking your adviser out could save you a spending retirement contemplating loss!
There are plenty of examples of failed pensions’ advice, where due diligence on the adviser and the receiving schemes could have saved thousands from financial ruin. Examples include; Forthplus SIPP, Carey Pensions and Brooklands SIPP. Advisers including Continental Wealth Management of Spain and many associated with the British Steel Pension Scheme in the UK. Do your due diligence and avoid any person/firm that had any association with such firms (Linkedin is often a good place to check out an adviser and their pasts!)
There appears to be a misconception, particularly among EU based advisers, that UK advisers cannot advise EU residents on their UK/British pensions. It may be due to a lack of understanding or a deliberate attempt to encourage people to transfer their UK pensions to alternative arrangements for the purpose of generating commission for themselves.
The end of EU passporting services into the EU by UK advice firms means that UK advisers cannot market their services within the EU or travel to the EU to offer their services. It does not prevent those with UK pensions contacting their UK advisers in the UK to advise them about their current UK pensions- provided their Professional Indemnity Insurers allow this.
In fact, given the UK requirement to achieve a professional level standard of qualifications it is far more likely that a UK based firm will be better placed to understand your UK pensions and advise you accordingly. Further, the MiFID rules for the EU do not actually cover pensions at all- a myth further exploited by EU based advisers looking for business by moving UK pensions.
That being said, if you have pensions left in the UK- Post Brexit- you really ought to have a review of these, in conjunction with your other pensions and investments. The Aisa Group have advisers in both the UK and the EU, qualified to both UK and EU standards. Who better to contact about your UK pensions Post Brexit?
We have no reason to recommend a pension transfer unless it is in your interests. We earn fees as we have terms of business with all the providers and we agree these fees transparently with you when you engage us.