By some considered unexciting, the world of pensions has been commanding attention as scammers continue to plague the industry, misleading savers and leaving people with little or nothing for their retirement.
Until around 2014, the vehicle of choice for dubious unregulated pension investments such as offshore property developments (Harlequin springs to mind), truffle trees and green oil investments were self-invested personal pensions (‘SIPPs’).
From as long ago as 2011, the regulator repeatedly warned SIPP operators that they needed to be careful about high risk esoteric investments being held in their SIPPs, particularly if the investor was unsophisticated and ostensibly not in receipt of advice from a regulated adviser.
In its ‘Dear CEO’ letter in 2014, the FCA made it clear that SIPP operators must undertake adequate due diligence processes on high-risk, speculative and nonstandard investments in these five key areas:
- correctly establishing and understanding the nature of an investment;
- ensuring that an investment is genuine and not a scam, or linked to fraudulent activity, money-laundering or pensions liberation;
- ensuring that an investment is safe/secure (meaning that custody of assets is through a reputable arrangement, and any contractual agreements are correctly drawn-up and legally enforceable);
- ensuring that an investment can be independently valued, both at point of purchase and subsequently; and
- ensuring that an investment is not impaired (for example that previous investors have received income if expected, or that any investment providers are credit worthy etc.).
In light of the stricter regulatory environment surrounding SIPPs, anyone promoting a dodgy unregulated investment needed to look elsewhere for a vehicle.
‘QROPS’ is the acronym for ‘qualifying recognised overseas pension scheme’. As the name indicates, QROPS are ‘recognised’ by the UK Revenue and are eligible for transfers to and from UK registered pension schemes. QROPS are useful for individuals living (or in the process of moving) abroad because there are tax benefits. However the regulators in other jurisdictions such as Malta, Gibraltar and the Isle of Man have not been as proactive as the UK regulator in this area, meaning that some QROPS operators have been slow to introduce safeguards.
QROPS can be utilised as a vehicle for unsuspecting investors to be sold high risk pension investments that would no longer be accepted by SIPP operators in the UK, as they would not pass the due diligence checks. It is understood that QROPS are currently the main source of pension scams.
Unregulated advisers promote transfers from UK pension schemes into QROPS, claiming relaxed rules abroad will provide more flexibility for accessing pension savings. The 2017 budget restricted the tax relief on moving pensions into QROPS, imposing a 25% tax on most transfers. Tax free transfers are now limited to those meeting strict criteria, all of which require conditions to be met alongside a genuine reason for the transfer; genuine reasons include living in the country the QROPS is in, or your employer’s pension scheme contributing to a QROPS etc. (full list of criteria here).
Only by taking advice from a high quality financial adviser will you know whether you can transfer your pension without incurring the 25% tax penalty. Any adviser making unsolicited approaches should be viewed with high caution, especially if they offer free advice. Further measures to safeguard against scams include checking an adviser is on the FCA’s register of regulated advisers (giving you recourse and compensation via the financial ombudsman and financial services compensation scheme if something goes wrong) and checking any suggested QROPS fund is on the HMRC list of recognised overseas pension schemes.
If you require advice on the above, please contact Pradeep Oliver on 01892 765 453 or at firstname.lastname@example.org.