Ex-DeVere duo fined by US regulator over transfers of British Pensions to QROPS


British pensions QROPS

British pensions transferred to QROPS are in the news again in the USA. The US regulator (SEC) has heavily fined two defendants who had a serious conflict of interest when advice was given to transfer British pensions to offshore pensions (QROPS) when working for DeVere.  This is the second time that the US regulator has acted .

The latest news on this has been published in several publications, including an article in International Adviser , who state that the two collectively will pay $750,120 (£573,952, €637,502).

Defrauding clients with British Pensions?

The two men were accused of defrauding clients about the benefits of irreversibly transferring their UK pensions to an offshore pension plan (QROPS), while concealing that they were receiving commissions offshore from insurance bond providers.

DeVere USA separately agreed to pay an $8m civil penalty in June 2018 to settle its involvement in the case. It subsequently sold its business to Hong Kong-based Brite Advisors, and some of its workers went to Guardian Wealth Management.

If you have been affected by a QROPS or SIPP transfer from a British pension as a US resident, contact us and tell us your story, and ask for help…

Does this happen in other countries with other companies?

This practice of using commission-based bonds when transferring British pensions to QROPS and SIPPs is adopted in many countries around the world by several companies. Commissions we have seen are usually between 6%-8% which lead to lock-in penalties and high ongoing charges which are detrimental to consumers. Many countries permit these commission products, insurance bonds and investment bonds, however, in highly regulated states such as the UK and the USA it is deemed illegal subject to each country’s own rules.

Therefore, while this case was about QROPS and British Pensions, the fact is that this carries on with International SIPPs and transfers from British Pensions as well and is unfortunately widespread.

QROPS- USA and Tax

Why is a SIPP more appropriate for transfers of British pensions?

Well, the answer can be found in a letter from the IRS in October 2011- well before the sale of QROPS to US residents from the transfer of British pensions became popular. We covered this way back in 2015 .

The letter from the IRS states-

If an individual is a resident of the United States under Article 4 (Residence) of the U.K. Treaty and a member or beneficiary of, or participant in, a pension scheme established in the United Kingdom, then a transfer of income earned by that pension scheme to another pension scheme established in the United Kingdom would not be taxed currently as income of the individual provided that each pension scheme qualifies as a “pension scheme” within the meaning of Article 3(1) (o) of the U.K. Treaty.

As it is clear, a transfer of a British pension to a SIPP (which is not true of all International SIPPs) would not have incurred tax charges from the IRS.

The letter goes on to state-

However, a pension scheme established in a third country, e.g., Malta, would not be a pension scheme within the meaning of Article 3(1)(o) of the U.K. treaty because it is not established in one of the two Contracting States (the United Kingdom and the United States). Therefore, if the transfer were to a pension scheme established in a third country, instead of to another pension scheme established in the United Kingdom, the transfer could be treated as a distribution that would be subject to taxation as income of the individual under paragraphs 1 and 2 of Article 17 of the U.K. Treaty.

In other words, this is not an eligible rollover and the article from International Adviser and the recent fine by the US regulator does not seem to take into account the tax that those that transferred may be liable to.

QROPS transfer- What to do next?

Anyone that was advised, as a US resident, to transfer to a QROPS need to review to things-

  1. The actual QROPS and the investments and charges.
  2. Discuss the transfer with a US tax adviser asap.

We at Tailormade can help with point 1. above and would be happy to liaise with a tax adviser as part of the process.

If you have been affected by a QROPS or SIPP transfer from a British pension as a US resident, contact us and tell us your story, and ask for help…

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

 

This article was republished on 17th August 2020

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