The UK government recently published a paper on regulations designed to combat pension transfer fraud, including new QROPS rules. Pension scams are the scourge of the professional financial services industry. Unfortunately, too many consumers have lost some or all of their funds to unscrupulous, so-called advisers.
The idea behind the legislation is to stop scams before they do damage. As a result, pension trustees’ powers have been increased, enabling them to refuse a transfer request if they suspect the individual is in danger of being scammed. Although this is welcome news, there is a real possibility that trustee fees will have to rise to compensate for the extra work and perhaps staff required to perform the necessary checks.
The legislation applies to pension transfers to/from Personal Pensions, SIPPs, Self-Administered schemes, Defined Benefit company pensions, and also QROPS transfers. The latest document covers most of the issues consumers face when considering a pension transfer.
Pension scams vs poor advice
Let’s take a step back for a moment and consider what a scam is. There is a fine line between real scams and what can be described as poor advice given by greedy or inexperienced financial salespeople. Some believe that all financial losses incurred by consumers are automatically scams. This is too simplistic and doesn’t tackle the real issues.
Poor advice and scams often have similar traits. They can both appear genuine investment opportunities and may even achieve what was promised in the early years. There is always an apparent and valid reason for investing, perhaps following a stock market correction, thus claiming to ‘protect’ investors by using ‘alternative structures’ and ‘non-correlated’ funds.
Scammers tend to be blatant in their exploitation. They invariably misappropriate the funds and then disappear. On the other hand, poor advice is often the result of someone having a bright idea, which depends on unrealisable expectations and unrealistic market conditions to work.
The difference, therefore, revolves around ‘intention’. The scammer always intended to relieve you of your money, whereas the bad/greedy adviser often truly believed that the scheme would work.
Malta QROPS and the new rules
Thankfully, out-and-out pension scams are unlikely to succeed due to an array of checks and balances that protect most consumers. This applies equally to UK pensions and Malta QROPS providers. There are still issues relating to other QROPS territories. However, these have become fewer and fewer as local legislation improves.
It is no longer possible to invest in an unregulated, esoteric fund via a Malta QROPS. Trustees are highly aware of their responsibilities to protect their client’s interests at all times. Any non-compliance with Malta regulations would be terminal for the company.
Future QROPS transfers
When the new rules were first introduced in November 2021, some industry commentators thought QROPS transfers would only be allowed where the client either lived in the same country where the QROPS was based or was employed in a bona fide trading company in that territory. This turned out not to be the full story.
There were indeed changes for applicants who lived in the same country as the QROPS and those who claimed to be employed in an Occupational Scheme. Essentially, for anyone claiming to live in the same country as the QROPS, stricter proof of residence is now required before a transfer can be made. Similarly, anyone claiming to be employed in that country must prove that the company is a genuine trading entity, and all the usual conditions of employment exist. Requirements would include a contract, salary, responsibilities, and T&Cs.
Although proof of an ‘employment link or residency link’ will be requested upon transfer to QROPS, failure to demonstrate residency in the same jurisdiction as the QROPS will not prevent a transfer from proceeding. People who live in an EU/EEA country are still eligible to transfer their UK pension to a Malta QROPS. This may however raise an ‘amber flag’ and the member will be asked to seek MoneyHelper guidance before the transfer can proceed.
Pension transfer requests will be permitted to proceed as normal once the ceding scheme has carried out its additional checks and established that there are no signs of pension scams.
The ‘transfer process decision tree’ below can be found on The Pensions Regulator website:
New QROPS rules: transfer process decision tree
As we suspected there was more to the new QROPS rules than met the eye. To misquote Mark Twain: reports of the death of QROPS transfers have been greatly exaggerated!
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