18 April 2024 • 4 minute read

FMA consultation on proposed exemption for UK pension transfer advice

The Financial Markets Authority – Te Mana Tātai Hokohoko (FMA) is consulting on a class exemption to allow UK regulated advice firms to advise New Zealand clients on UK defined benefit pension transfers without the need for a New Zealand financial advice provider licence. Submissions close at 17:00 on Thursday, 13 June 2024.

Background

A person immigrating or returning to New Zealand from the UK may be a member of a UK pension scheme. It is not uncommon for them to want to repatriate their UK pension benefits to a New Zealand scheme (which must be a “Qualifying Recognised Overseas Pension Scheme” or “QROPS” for UK tax purposes) so their pension savings are closer to home.

Where the UK scheme is a “defined benefit” scheme the repatriation will involve the crystallisation of the expected future income stream of the defined benefit into a “cash equivalent transfer value”. Because this involves surrendering a future income stream for a present sum, UK law requires that for any transfer of such benefits worth more than GBP30,000:

the person receives financial advice from a UK regulated adviser with appropriate authorisation from the UK’s Financial Conduct Authority; and
the person provides evidence of that advice to the transferring scheme.

However, where the person is in New Zealand, the provision of that advice by the UK regulated adviser would trigger the New Zealand financial advice rules, likely including the need to hold a financial advice provider licence issued by the Financial Markets Authority and to comply with the duties and obligations for providing regulated financial advice under the Financial Markets Conduct Act 2013 (FMCA).

The costs for these UK regulated advisers to obtain a financial advice provider licence are potentially significant and the FMA is concerned this could be limiting the availability in New Zealand of advice required to transfer UK defined benefit pensions.

Proposed exemption

The FMA is therefore consulting on an exemption to provide for relief to UK regulated advisers in these circumstances. The proposed exemption would only apply to the provision of advice on defined benefits transfers to New Zealand QROPS and would exempt the UK regulated adviser from the obligation to hold a New Zealand financial advice provider licence, and comply with certain financial advice provider duties and obligations where those are equivalent to UK duties and obligations that the adviser is already complying with or where compliance would be impracticable.

The FMA is proposing or considering a number of exemption conditions. In the main these would require the UK adviser to be regulated by the UK Financial Conduct Authority, register on the New Zealand Financial Service Providers Register and be a member of a New Zealand dispute resolution scheme, submit to the non-exclusive jurisdiction of the New Zealand courts and appoint a New Zealand agent for service, provide written disclosure to New Zealand clients of the nature and effect of the exemption, comply with the “core financial advice provider duties” under the FMCA.

Our thoughts

We think the proposed exemption is sensible. New Zealanders wanting to repatriate a UK defined benefits worth more than GBP30,000 have to get advice from a UK regulated adviser if they want to transfer. The requirement for UK regulated adviser to obtain a New Zealand licence to provide that advice is a significant disincentive for UK advisers to provide that service. This makes the already complex process of transferring a UK pension to New Zealand difficult (if not impossible) for those who need this advice to make that transfer. We do note that, as is customary, the UK advisers fees will (subject to the relevant trust deed) be able to be paid out of the fund.

Given UK regulated advisers are already subject to stringent regulation in the UK, including oversight by the UK Financial Conduct Authority, we think the relief from the New Zealand licence requirement is appropriate. For the same reason, we think there is merit in considering more limited conditions of exemption than those proposed, in order to reduce the risk of the exemption conditions continuing to disincentivise the provision of the advice required by UK law.