Global mobility and emigration are on the rise as an increasing number of individuals choose to retire or spend part, or most, of their working life overseas. These individuals may already be living outside the UK or be considering a return home. They may be considering emigrating in future, all the while a deferred member of a UK pension scheme.
For defined benefit pensions, the proportion of members overseas at any one time is estimated to range between 5 and 10 per cent across any scheme. This figure will most likely inflate across industries such as aviation, commodities, banking and finance industries, or multi-national firms with a prominent global presence.
But this relatively small member pool is very often overlooked by scheme managers and trustees, despite its huge significance. This is particularly the case ahead of Brexit as more members may consider emigration.
Sponsors and trustees are naturally keen to manage the ongoing liability associated with funding defined benefit schemes, leading to a steady and increasing number of incentivised transfer exercises. This should be applauded as it creates opportunity for all parties to benefit.
Scheme trustees, corporate sponsors and associated advisers, however, continue to miss one particular obligation as they seem content to exclude overseas members – something that can hardly be considered equal or fair to all members.
My issue is that if project sponsors are prepared to support UK-based members with regulated advice, overseas members should also be offered the same opportunity. Sadly, the fact remains that many UK-based advisers do not hold the relevant passports, necessary technical knowledge or experience to legitimately deal with overseas members. The required expertise and understanding of the potential impact on taxation, state benefits and how benefits be accessed are not widely comprehended and thus practiced.
Companies and trustees have historically shown a reasonable caution around the serious reputational damage associated with incentivised transfer exercises; particularly as members may seek redress for any incorrect financial advice received. In the past, offers had been issued incorporating elements of a ‘cash bung’ contingent on a member transferring benefits, sometimes to a pre-arranged defined contribution provider. This activity prompted the Department of Work & Pensions (DWP) to create a Code of Good Practice (The Code).
The Code quite rightly sets out that all members are offered equal access to a UK-based financial adviser with fees paid by the sponsoring employer for the advice provided. However, in respect of overseas members, the Code sadly references overseas members in a rather unforgiving and contradictory manner. Dismissing their overall requirements as simply too complex, this scheme pool results in being severely ‘overseas overlooked’.
In my view, the Code could be doing so much more to ensure better outcomes for all members. Surely the DWP can see that it is these members, with the most-complex circumstances and vulnerability, that are in particular need to such equal and adequate advice?
Overseas members must be offered access to a carefully chosen selection of suitably qualified, FCA-regulated advisers equipped with the competency to provide specialist recommendations within this niche and ever- complex global financial planning sector. Tailored cross-border solutions will undoubtedly deliver better outcomes all round; further complementing the delivery of incentivised exercises. Better due diligence and an expert, ethical approach will have project sponsors and trustees rest assured that the overall member experience is appropriate to the needs they have.
If the corporate sponsor and trustees genuinely want to offer members access to a choice in how benefits are taken, overlooking overseas members’ interests means they fail in their obligation to treat all members equally.
Worse still, this exclusion often entails scheme trustees recommend overseas members seek self-funded advice in their current jurisdiction, exposing such members to pension scams by unscrupulous overseas advisers that are all too ready to swoop. I have seen it happen and the damage that can be caused is as severe as 80 per cent of an individual’s pension pot. In short, people’s lives can be very easily ruined as a result of a scheme’s ignorance of their member’s domiciled location.