News
Advisers cash in on Oz tax changes
Paul Beasley looks into claims that some Australian financial advisers promoted transfers that weren’t in the best interests of their clients.
"Scare tactics" have recently been used by a selection of Australian financial advisers to encourage pension transfers from UK schemes and capitalise on initially ambiguous changes to the Australian system on 1st July, according to two financial specialists.
Geraint Davies of Montfort International, a company which offers financial planning services for those leaving the UK and heading Down Under, claims that some Australian advisers "have been procuring business by carefully contrived advertising campaigns to panic former UK residents and nationals into transferring their pension funds to Australia. Their reason has been one not fuelled by client's best interests but invariably by their own. We categorically are not against transfers – it's how they are done that is our concern."
The main thrust of the campaigns has been that UK pension transfers to Australia are to stop completely. UK pension scheme members appear to have been cajoled into believing that they have until 30th June 2007 to move their UK pensions funds to Australia. As a result, many migrants and former UK residents have been led to believe that they are, in Davies' words, "at the last chance saloon," because Her Majesty's Revenue and Customs (HMRC) is about to slam the door shut.
Brisbane-based Australian financial adviser Clive Herrald, from Global Pension Transfers, confirms that some Oz-based companies have indeed attempted to profit in this way: "Several high profile pension transfer companies mounted both a television campaign as well as a print media blitz suggesting that the UK regulators were going to close off all transfers from 30th June based upon the new tax provisions that will apply from 1st July."
These new provisions were a result of an Australian Budget announcement removing the Reasonable Benefit Limit (RBL). On top of this, adds Davies, there was the possibility that "taxation on pension benefits received for a retiree would be stopped when drawing their superannuation benefits, from age 60."
This brought questions to the forefront for many Australian schemes set-up as UK Qualifying Recognised Overseas Pension Scheme (QROPS). Would the HMRC allow an Australian scheme QROPS status and, furthermore, receive transfers from the UK, post 30th June 2007, if the benefits were to be paid tax free?
With the implications unclear, some advisers attempted to profit from the uncertainty.
As Herrald states, "To a certain extent they were not incorrect in as much as the actual QROPS provisions were going to be breached by the new Australian tax laws as they relate to superannuation. They were also advised by the receiving schemes in Australia that they would only accept cheques dated pre 30th June to avoid them breaching their QROPS status. That, in itself, did give some justification to the actions of several financial planning firms.
"What was not said was the fact that off the record HMRC conceded it was going to be impossible to freeze transfers and that their legal department was working feverishly to get around the problem."
"The legislation was, I agree ambiguous," continues Davies, "and its ambiguity was enough for some advisors to see an opportunity to make such claims. Such advertising claims have even gone as far as to state that they were working hand in hand with the UK tax office to resolve the supposed issue, when clearly they were not."
So, how did Herrald's approach differ from that of some other Australian-based companies? "From my perspective and one or two other firms which are involved, we took the view that whilst there was a risk it was not considered to be a long-term threat to the business. We wrote to our clients and advised them of the potential freezing of the transfer process but at the same time we advised that we would continue with the transfer process by obtaining details and paperwork from the UK schemes. If there was a freeze then we would have to accept that as fact, but if the problem was overcome, and we were very confident that that would be the case, then we would not be losing any time in the process and would continue as normal."
Although the strategy was not without some risk, Herrald's approach turned out to be the right course of action: "Fortunately, now that HMRC has confirmed in writing that transfers to Australia will be allowed after 1st July 1st our actions have been vindicated."
But what are the implications for those UK pension scheme members who have been advised to move their funds before the door supposedly slammed shut?
For some individuals, with very large UK pension funds, a transfer to Australia prior to 1st July 2007 may in some cases work. The removal of the RBL and the coming of annual contribution caps could result in some large UK pension funds unable to transfer in one transaction post 30th June. "However," says Davies, "for the vast majority the cap is not an issue and their best interests have not been served. As a result of the scare tactics, consider the exchange rate between the sterling and the dollar. Individuals have been coaxed into moving their funds, at a time when the exchange rate has been at its least favourable for 12 months, causing the loss of value to their fund."
Davies concludes, "Why would you want to transfer when the exchange rate is against you, when advisers and schemes don't know the rules and when such massive market value adjustments could be knocking a pension fund transfer by sums of even 50 per cent or more?"
For further information:
Montfort International
Global Pension Transfers
Subscribe to Emigrate magazine. Read more ...
11 June 2007