Advisers warned of pension transfer perils

Financialplanners offering advice on pension transfers from the UK face litigation for failing to research the full implications of transferring client funds to Australia following a spate of legal cases.

UK pension transfer specialist Pension Transfers Direct managing director David Ford says he has recently acted as a witness in several recent cases brought by clients against their advisers.

“Tax is obviously a big issue, but perhaps more importantly, most planners never quantify what clients are being taken out of in the UK. Most UK pension schemes are defined benefit in which the member’s pension is guaranteed irrespective of world investment markets,” he says.

According to Brisbane-basedGodfrey PembrokeUK pension manager Daniel Whiting, who says there are between 1,000 and 1,500 transfers from the UK each year, “there are advisers out there who are going down the path of trying to transfer pensions and getting themselves in a complete muddle”.

Whiting stresses that advisers must have a good understanding of how both the UK and Australian pension systems work, as they do not complement each other, and also know what clients are sacrificing in the UK.

“It’s not just a case of giving up their UK pension, a client may also face significant tax costs in Australia. If planners just blindly transfer funds, it may come back and bite them,” he says.

TheAustralian Taxation Officerecently issued a ruling (TR 2003/12) on the issue. The draft legislation in relation to the ruling is likely to be tabled in Federal Parliament next year.