Article Summary

A pension transfer to an offshore bond can be advantageous if the investment is with a good provider, and it gives you the flexibility to withdraw any amount of money without affecting the value of your full contract. Having said that, we would certainly be quick to warn against using investment bonds from companies that are not regulated by the FCA.

In this article, we will discuss the difference between offshore bonds and FCA platforms, the pros and cons of both instrument, and what are the best options for your Defined Benefit pension transfers. You can also learn from one of our YouTube video discussing the matter below.

New Pension Regulation “Amber Flag Vs Red Flag”

As a result of the government’s updated measurement of the Defined Benefit pension transfers, it became even more complicated in November 2021. To prevent pension fraud, the Pension Schemes Act 2021 requires that certain conditions be met before a member’s benefits can be transferred to another scheme.

The Occupational and Personal Pension Schemes—Conditions for Transfers—Regulations 2021 implemented the statutory transfer conditions on November 30, 2021. They are intended to give trustees the authority to halt a transfer if there is a risk that a member’s pension benefits or savings will be transferred to a fraudulent arrangement. 

Before a statutory transfer can take place, the trustees must be satisfied that one of two statutory conditions has been met, according to the Regulations. The first condition pertains to transfers to authorized master trusts, public service pension plans, and defined contribution (DC) plans. The second condition, which requires trustees to identify whether any of the prescribed red or amber flags are present, applies to all other transfers.

The rules, which are the result of a DWP consultation, require pension providers to raise red or amber “flags” when a transfer attempt is made to certain types of schemes. 

A “red flag” indicates that the statutory right to transfer has been removed, whereas an “amber flag” can be used to halt a transfer until the scheme member can show that they have followed scam-specific advice from the Money and Pensions Service (MaPS). If an amber flag is raised, the member must seek scam advice from the Money and Pension Service before the transfer can be completed.

Many Inconsistencies May Be Raised By The New Regulation

Many IFAs, including Cameron James Finance, have expressed concern about how each regulation is interpreted by the flagging system. Trustees have faced the challenge of determining how the legislation should be interpreted and applied in practice since its inception. 

Particular difficulties have arisen in cases where a member has been “offered an incentive to make a transfer,” on the basis that several mainstream providers offer small incentives, such as small cash payments or “refer a friend” schemes, in exchange for transfers into their scheme. and an amber flag indicating that “any overseas investments in the receiving scheme” exist.

The joint statement and updates to the regulator’s guidance are absolutely necessary to attempt to overcome some of the legislation’s unintended consequences, particularly to clarify the intention behind the flags relating to incentives and overseas investments.

How to Avoid Amber or Red Flags on Your DB Pension Transfer 

Aside from the debate over the pros and cons of the new regulation, we appreciate that it protects people from being scammed and running out of money for their retirement. The strict regulation is extremely beneficial in helping either DB or DC pension members understand their situation as well as the implications of every move they would make with their pension.

Amber or red flags are an indicator of where you should stop and take a second look at the pension transfer process. This will help prevent mistakes from happening, which could cost you financially and emotionally. These are some common signs that your money is not in good hands.

The new regulation, for example, states that “if the transfer is not to one of those listed types of schemes, members can exercise their statutory right to transfer subject to the provision of certain prescribed evidence.” 

“There is an amber flag present if the trustees or managers of the transferring scheme determine that there are any high-risk or unregulated investments included in the receiving scheme; there are any unclear or high fees charged by the receiving scheme; the structure of investments included in the receiving scheme is unclear, complex, or unorthodox; and there are any overseas investments included in the receiving scheme” 

The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021

Offshore Bonds vs. FCA Platforms

To reassure you, offshore bonds are not regulated by the UK Financial Conduct Authority. In many cases, you will be unaware of the full range of fees and commissions. Commissions paid to advisers are based on the initial investment, and they can still receive ongoing payments in the form of commissions from providers. 

However, not all offshore financial advisers accept commissions, and some will work on a transparent fee model similar to that used in the UK. If you try to transfer your bond to a different solution or provider, you may encounter significant exit penalties and charges.

Transferring a DB pension to an offshore bond has significant shortcomings. Under certain conditions, such as the fact that an offshore bond is not FCA regulated and may subject you to higher charges, fees, and commissions, or even rip you off, investment bonds can be invaluable. An offshore bond for a DB pension has a much more complicated charging structure than a SIPP, even if it is in a single account; we discovered that a single account can have up to 70 different charging structures.

Is an international SIPP Suitable For You?

International SIPPs are one of the alternative personal retirement plan options if you plan to migrate to a country other than the United Kingdom, including the United States, or if you already live there and want to combine your UK pension plan while living abroad. HMRC recognizes two types of self-invested personal pensions: the Self Invested Personal Pension (SIPP) and the International Self Invested Personal Pension (iSIPPs). Both schemes have the same structure in that they are both HMRC-regulated plans, but their purposes may differ.

SIPPs are intended for UK residents, while international SIPPs are intended for non-UK residents, including those in the United States (US Residents or US Connected Persons). allowing you to manage your UK retirement plan effectively by keeping assets in the UK but managing them from abroad as a non-UK resident.

The Bottom Line

The first thing pension savers need to remember is that transferring their pension to an offshore bond is not necessarily safe. Despite the best efforts of the Pensions Regulator and the Financial Conduct Authority, the amount of transparency on company-regulated bonds remains questionable.

A DB pension migration agent will often suggest transferring you to a bond, as they are exempt from FCA regulations. This might mean that you sacrifice details of your pension or an independent review; that said, it also means that you can avoid paying commission—yet this does not mean you should avoid looking for one.

This is why, it is important to consult a proper IFA that is regulated and qualified to provide the best financial advice that you need to transfer your Defined Benefit pension transfer. Cameron James is an FCA regulated Independent Financial Adviser (IFA) and Pension Transfer Specialist with 10 years of experience in the field.

We provide personalised advice, tailored to your individual circumstances, and take the time to explain to you the options available and the risks and rewards associated with them. Our goal is to ensure that you make informed decisions about your retirement plans. Hit the button on the right side to start talk to one of our qualified IFAs in a free initial consultation Zoom call.

Our Founder & CEO -
Dominic James Murray

I have been in the UK Pension Transfer industry for over 11 years, and have witnessed seismic changes in the UK Pension rules over the course of that decade. Most to the benefit of the UK Chancellor or to Chequer!

My 5 years as CEO of Cameron James, have certainly been the most rewarding. My goal, has been a simple one. Provide clients with transparent financial advice on a low-cost basis, for them to make informed decisions to protect their families best interests.

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