Caveat Emptor – UK Defined Benefit Pensions
It’s as rare as an effective British politician these days, but I learnt Latin at school. In my defence I did it to escape “Home Economics” which is a decision both my wife and myself are constantly grateful for.
Apart from being able to read Caesar’s “Gallic Wars” and Homer’s “The Illyad” in the native language there has been little practical application of my Latin lessons.
Of course, it does help when reading Coats of Arms mottos. The London Stock Exchange motto is “Dictum meum pactum”, or “My Word is my Bond.”
Lloyds of London, the world’s insurer, is “Uberrima fides” or Utmost good faith. Both laudable motto’s and one which we all hope they live up to.
An underlying Latin phrase in Contract Law is “Caveat Emptor” or Buyer Beware. Effectively, this means you need to be very careful when entering into this style of contract, frequently associated with buying a used car.
So why am I reminded of Caveat Emptor today?
Well I have just spent the last hour and a half talking to a UK expat living in Perth WA, who has been dealing with a so-called QROPS Specialist based in Sydney. This specialist wanted to talk to him about his UK pension fund and how they could improve his position.
This expat is one example of calls we receive every single week. The caller wanted a second opinion on what he had been told, as he didn’t feel comfortable. Caveat emptor working well here. So, what was wrong and why did he seek a second opinion?
- The “QROPS specialist” had Cold Called him, via LinkedIn, and had been regularly chasing him.
Expat statement “This didn’t feel right”
- Our reaction, “When was the last time a surgeon cold called you to sell you that vital heart operation, or a lawyer cold called you to insist you wrote a Will?” It doesn’t happen, you are being SOLD to, not advised. Caveat emptor comes into play here. As an aside, this practice is now illegal in the UK.
- The Expat has a valid, current Cash Equivalent Transfer Value for his UK Defined Benefit scheme.
Expat statement “The QROPS Specialist told me I had better transfer to a SIPP now as the value will fall due to Brexit”
- Our reaction, how can they possibly know? The valuations being offered now can be higher or lower in the next valuation, there is simply no way of knowing. It is based on individual scheme circumstances and the actuary’s assumptions. We have seen an equal number of schemes increasing the CETV as decreasing in any six month cycle. Do not be rushed into making decisions. Transferring out of a UK defined benefit scheme is irreversible, caveat emptor.
- The “QROPS Specialist” explained that the CETV of £350,000 and promised pension of £9,000 per year meant the scheme had offered an incredible 39 times factor and he must take advantage now.
Expat statement “It seems like an excellent offer, should I not take advantage?”
- Our reaction, this is NOT how UK defined benefit schemes work and demonstrates (as if there was any doubt) that the QROPS Specialist has no understanding of them. In fact it is wrong and seriously misinterprets the value being offered against the promised pension. You must ignore that statement as it is a lie. It is easy to see what you consider a high value against a promised pension and be enticed to transfer out. I compare it to buying a shiny new car without knowing what is under the bonnet. Very easy to do, but don’t!
Fortunately, it is a UK regulatory requirement that anyone with a defined benefit scheme valued at £30,000 or greater to receive UK FCA regulated advice by a Pension Transfer Specialist holding specific qualifications and permissions.
This advice will include a Transfer Value Comparator (TVC) which enables you to see under the bonnet and make an informed decision. It also includes an Appropriate Pension Transfer Advice (APTA) report where the UK adviser needs to make a statement whether to “Remain” (funny that!) or to “Transfer Out”
- “The QROPS Specialist told me that all UK reports must recommend a “Remain” and to ignore it and transfer out regardless.
Is that true?”
- It is in fact a Lie. It’s one of the biggest lies being told to Australian based UK expats by QROPS Specialists today. If your advice report from the UK Pension Transfer Specialist recommends that you remain in your scheme, then remain in your scheme. Common sense or caveat emptor, you decide.
- We present our UK Pension Transfer Specialists a well reasoned and quantifiable explanation of Australian superannuation rules and how they benefit the client. We receive a 50/50 Remain/Transfer outcome based on this. It doesn’t mean NEVER transfer out, it means possibly not yet. This is the ethical and sensible solution.
- Saying ignore the UK TVC and APTA again demonstrates a lack of knowledge of UK defined benefit benefits and removes any regulatory protections you may have had.
This article is not intended to be an extensive list or explanation of the UK defined benefit pension landscape. It is intended to raise four main areas that I hear are currently being “touted” in the Australian QROPS market and provide our response. It is for you to take heed or ignore, your choice. Caveat emptor indeed.
Anyway, must go, tempus fugit.
About the author:
Simon Harding is an Australian based adviser, providing ethical and knowledgeable advice to clients with UK pension benefits seeking qualified, experienced advice. He holds Certified Financial Planner® status in both the UK and Australia and is the only CFP™ Chartered Fellow of the Chartered Institute of Investment and Securities licensed in Australia. The views represented in this article do not necessarily represent the views of Harding Wealth Management Pty Ltd or the Australian Financial Services Licensee (AFSL), HNW Planning Ltd