In 2016, the UK Financial Conduct Authority (FCA) made it compulsory for anyone wanting to transfer out of a Final Salary, or Defined Benefit (DB) Scheme, that had a transfer value of over £30,000 to obtain FCA advice prior to transferring from a UK registered adviser.

A Defined Benefit scheme is a salary related pension scheme that gives you a guaranteed income for life. Sometimes, employers may offer an incentive to transfer your funds out of this scheme. When you transfer out, you forfeit your benefits within the scheme in exchange for a cash payout, which can then be invested into another pension scheme. You may also wish to transfer your funds out of a DB scheme if you have immigrated to, or reside in another country, but again, the benefits are forfeited.

The rationale for the compulsory advice was that the FCA believed people transferring out of a final salary scheme would not get benefits in the open market that could match the benefits of their schemes.

While this may be true in the UK, it is not necessarily the case when transferring the funds to New Zealand. The scope of the advice given under FCA is very prescriptive and only looks at it from a UK perspective.

What are the limitations of “do not transfer” advice?

The compulsory advice can only be given by an FCA approved adviser. In the majority of cases, the FCA advice is not to transfer. The FCA adviser has to use a series of financial models to determine if transferring out of a final salary scheme is a good idea.

These models don’t account for the difference in tax regimes between the UK and New Zealand, and in our opinion, they use very unrealistic growth expectations. For example, they have to use a 1% pa return for alternative investments.

When considering transferring your pension, it’s important to get the right advice that is specific to your circumstances.

The result is that the models used by the FCA adviser will give a “don’t transfer” outcome, because they are not using long-term, real-world returns.

The reason that the FCA approach is ultra conservative and does not use real world returns that take into account the different tax regimes between NZ and the UK is that they need to assume that you may decide at a later date to return to the UK.

Can you still transfer your pension funds if you are advised not to?

The compulsory aspect of this is that your UK Pension provider has to make sure you have received independent FCA advice when your pension fund is over £30,000.

Just because the FCA advice is ‘do not transfer’, your pension scheme cannot halt a transfer if you insist that you want to transfer. You are deemed to be an “insistent client”.

What’s the best course of action if you’ve worked in the UK and are now living in New Zealand?

Ultimately, there are a number of factors that need to be considered if a UK expat or somebody who has lived and worked in the UK is currently residing in New Zealand. The FCA will not consider these factors, because they need to stay within their own models in order to provide their best advice to people remaining in the UK. Adding all international factors into this mix would simply be too confusing.

It is also not advised to depend on the IRD (in the UK or New Zealand) for tax advice relating to your pension. While they are there to support you, their role is not to give advice on investment matters.

However, a New Zealand financial adviser can work with the FCA in order to determine the best outcome. They can give you retirement projections and provide the FCA with these projections based on transferring your pension to New Zealand as a lump sum.

The outcome is often different to what it would be if the FCA worked independently on these cases. In some cases, the advice is still not to transfer. But in the majority of cases, there is a clear advantage to transferring.

The best course of action, then, is to seek advice from somebody who clearly understands the difference between UK and New Zealand tax regimes, in order to make the most informed decision about whether or not to transfer your pension.

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