Philip Hammond’s surprise 25% tax on QROPS transfers will leave many advisers and trustees floundering as the industry tries to make some sense of the long-term consequences for expatriates and their pensions. The uncertainty of the “five-year” change of circumstances rule will leave a huge question mark over the offshore landscape.
But while the industry ponders the fall-out of the Hammond organ, the “elephant in the room” is far more sinister: offshore trustees who have accepted business from scammers. This has been a serious problem since at least 2011, and the fall-out is £ millions of pounds’ worth of pension losses and sometimes tax liabilities for the thousands of victims.
Regulators, ombudsmen and financial crime units are now being sent detailed reports on thousands of cases where trustees have either been in league with the scammers or simply turned a blind eye to obvious scams – putting profit before due diligence (either accidentally or deliberately). The distinction between the varying shades of grey is sometimes somewhat subtle, but it always has the same outcome: pension losses for the victims.
The jurisdictions affected include New Zealand, Guernsey, Malta and Gibraltar principally (although not exclusively). Whatever problems there may be with Hammond’s 25% blow job, the culpability of rogue trustees will hopefully now become a hot issue – and victims will stand a better chance of obtaining redress for their losses.
In Guernsey, from 2010 onwards, Concept Trustees was routinely accepting business from Stephen Ward of Premier Pension Solutions. Although Concept was warning some victims that Ward had provided no evidence of regulation or professional indemnity insurance – and refusing to communicate with him – this did not stop Concept from accepting transfers and dealing instructions from Ward. Concept should never have been offering members investments in toxic, high-risk funds such as EEA Life Settlements and Connaught Property Loans. In fact, the FSA had issued warnings about EEA in February 2010, but Concept continued to offer this to low-risk, cautious investors in the full knowledge that it was an entirely unsuitable investment for a pension fund.
At around the same time, Gower Pensions in Guernsey was accepting business from Dubai-based Holborn Assets. The firm was not licensed for pension or investment advice in Spain – or for any activity beyond wearing an expensive suit, regurgitating convincing, high-pressure sales patter and having an impressive leather-bound portfolio. Despite several years of communication with both Gower and Holborn, a derisory amount of compensation for heavy pension fund losses has been offered (and refused).
In 2012, New Zealand’s Evergreen Retirement Trust launched a pension liberation scam with Stephen Ward of Premier Pension Solutions. Three hundred victims – mostly Spanish residents – transferred their UK pensions (aggregate value of around £10 million) to Evergreen and obtained 50% “loans” from Ward’s Cyprus-based Marazion loan company. The loans were financed by the assets of the scheme and the victims were tied in to both the loan and the pension scheme for identical five-year periods. This particular chicken is coming home to roost later in 2017 and it will be interesting to see how the various parties in New Zealand and Spain who were behind this scam will try to escape liability and culpability.
In the last couple of years, pension scammers have moved away from the bogus occupational scheme approach and into QROPS – which they find even easier to use, abuse and lose. In 2015, Malta-based Integrated Capabilities started accepting transfers into their Optimus scheme from unlicensed scammers in the Czech Republic. These same scammers were also the distributors/promoters of one of the toxic, high-risk UCIS funds being used as the assets of the scheme. Despite Optimus having Lombard Bank (purportedly) as Investment Manager, there seems to have been an absolute lack of due diligence or transparency. In fact, had Integrated Capabilities bothered to look a little closer at the scammers they were getting into bed with, they would have seen that one party had been a cold-calling operation behind the Capita Oak £10 million scam.
But Gibraltar’s STM Fidecs probably takes the biscuit – or even the whole shopping trolley. In 2014, STM started accepting transfers from UK residents by an unlicensed firm which had also been involved in Capita Oak and other scams. This firm was not only the adviser but also the investment manager to the toxic UCIS fund that the victims’ pensions were invested in. This fund – the Trafalgar Multi Asset Fund – was invested entirely in German property development loans (which pay handsome introduction commissions to the introducers) and is now suspended and being wound up.
While it is clear that Hammond hasn’t a clue about pensions in general or QROPS in particular, his 25% surprise may have had unintended consequences in that it will shine the spotlight firmly on negligent offshore trustees who facilitate financial crime – either through omission or commission. Whether the regulators, ombudsmen and financial crime units in New Zealand, Guernsey, Malta and Gibralta will order these trustees to compensate their victims remains to be seen. The survival of these offshore jurisdictions as “safe havens” for financial business depends on them cleaning up their act and outlawing unlicensed operators profiting from trustees’ lax approach to due diligence.
The future of the QROPS may be uncertain, but the future of pension trustees such as Concept, Integrated Capabilities and STM Fidecs should be very clear: no dealings with scammers; no toxic UCIS investments; no failing to compensate victims who suffer pension losses through negligence and/or fraud.