FCA expresses concern about overseas pension transfers

27 June 2023. Published by Ben Simmonds, Associate and Mars Yeung, Trainee Solicitor

The FCA has emphasised the importance of consumer protection amid promises of significant returns from overseas pension arrangements and offshore investments held within SIPPs. The FCA's publication is a reminder to UK firms of their consumer obligations when accepting pension transfer referrals from overseas advisers.

The "overseas advice model"

The "overseas advice model" applies to members of UK Defined Benefit pensions who are based overseas, and where overseas advice firms target members about transferring into alternative arrangements.

For pension transfers with a cash equivalent transfer value over £30,000, members must receive "appropriate independent advice" from an FCA-authorised firm before trustees can transfer benefits to a defined contribution scheme.

To satisfy the requirement of obtaining advice, scheme members are typically introduced by overseas firms to UK advice firms, with the transfer of funds and subsequent investment of those funds then arranged by the overseas firm. 

The risks to consumers and UK advice firms

The publication on the FCA's website (link provided below) provides several scenarios which present risks to consumers and UK advice firms. The key issues within each scenario centre around the adequacy of due diligence on overseas firms; contact with the member; the quality / type of advice; potential for excessive charges to the consumer in overseas arrangements; and members insisting to proceed contrary to advice provided.

As part of their harm prevention and detection obligations, firms should ensure that they conduct thorough due diligence on both the overseas advisers and the offshore investment products. This involves assessing the reputation, regulatory standing and track record of the advisers, as well as evaluating the transparency and regulatory framework of the offshore investment.

Firms should also assess the suitability of offshore investments for the individual consumers, taking into account their risk tolerance, financial objectives and other relevant factors. Risks will arise where the UK advice firm has had little or no interaction with the member and relies solely on information provided by the overseas firm. Clear and transparent disclosure to consumers should be provided, ensuring they understand the risks and benefits associated with offshore investments. Abridged (not full) advice will not suffice.

Charges on the member should be considered by UK advice firms in their advice on the transfer, particularly where charges on overseas investment products can be complex and, in some cases, higher than the potential investment growth on a realistic projection.

Where the UK advice firm recommends that the member remain in their scheme and the member subsequently becomes insistent on requesting a transfer, this may be an indication of coaching or that the member is acting under the influence of the overseas firm, and such situations should be treated by firms with caution.

With the introduction of the Consumer Duty looming, this FCA publication serves as a reminder that firms should pay particularly close attention to those duties when receiving introductions from overseas firms.

In short, the FCA will expect UK advisers to treat overseas referrals with extreme caution and firms will need to robustly document all due diligence and advice work if they are to avoid future criticism from the FCA.

Please click here to read the FCA publication.

Stay connected and subscribe to our latest insights and views 

Subscribe Here