Troublesome Transfer Tariff

UK to NZ through QROPS

In July 2012 Hilary applied to join Everest, a managed fund retirement scheme. After Everest accepted Hilary her UK based pension was transferred from her UK Scheme into her Everest member accounts.

Hilary was able to transfer her UK based pension to Everest because Everest was a QROPS (qualifying recognised overseas pension scheme) recognised by the UK tax department, HM Revenue and Customs.

In November 2012 Everest was suspended from the approved QROPS list and stopped accepting pension transfers. This increased the fee pressure on Everest and in late September 2013, Everest advised Hilary and all scheme members of an increase in its management fees from 1% of the value of a member’s accounts to 1.5%. Hilary was concerned about the increase in management fees and did not believe that the service she was receiving warranted such a high fee.

Hilary started looking at other schemes and became concerned with Everest’s administrative systems, particularly that Everest could not display funds invested in its Great British Pounds denominated accounts with the correct ‘ £ ‘ symbol. Hilary was also concerned that Everest would remove the option to invest in NZ dollar denominated funds in future and that fees would increase while Everest was suspended from the QROPS list. 

Hilary applied to leave Everest and transfer to another QROPS scheme. Everest told her there was a transfer fee of 6% that would apply to Hilary’s accounts.

Hilary formally complained to Everest in September 2014 about her concerns with its administrative service and the proposed transfer fee.  

Everest let Hilary transfer the majority of her funds to her new scheme and negotiated with her about the transfer fee. Everest offered Hilary a transfer fee of 3%.

 

The complaint

Hilary did not accept Everest’s offer and complained to FSCL that Everest’s proposed 3% transfer fee was unreasonable in the circumstances and Everest should waive the fee entirely.

 

Outcome

FSCL investigated the complaint and found:

  • Everest had reasonably complied with the terms of its trust deed and investment statement. The transfer fee had been fully disclosed and correctly calculated.
  • The ‘close relevance test’ was an appropriate test in the circumstances to determine whether Everest has proposed a reasonable fee. This required Everest showing that the fee would be used to recover actual costs incurred in the management and redemption of Hilary’s funds. 
  • Everest showed that the expenses required in redeeming Hilary’s accounts would be close to 3% of her funds. There would also be as yet unquantifiable costs and impacts on other members in the scheme. Based on the information available we concluded that Everest’s transfer fee of 3% of Hilary’s accounts was reasonable in the circumstances.

 

We found that Hilary’s complaint could not be upheld. Although Everest did not live up to the service levels expected by Hilary, we found that it had reasonably complied with its own policies and its statutory obligations. In the circumstances, we considered Everest’s proposed transfer fee of 3% of Hilary’s account to be reasonable.  

     

Lesson

In setting or charging a fee a financial service provider has to show that its fee is reasonable. A fee is assessed as being reasonable by taking into account the underlying expenses and work done that is covered by the fee charged. For a fee to be reasonable it cannot be a penalty and the actual fee charged should be closely related and relevant to the actual expense incurred in providing the service.