‘In 1988, two greedy young men in shiny suits sold me a pension – now I am in utter despair’

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Dear Becky,

I am in absolute despair about a pension that I believe was mis-sold, and which now I cannot access. This is a long story, so please bear with me. 

In 1988 my former husband and I had been working overseas as crown servants with the British Council. Just before he took up a post in South Africa, we took out a buy-to-let mortgage in the UK. We were advised to get an interest-only deal backed by a financial vehicle. 

We thought it was an “endowment policy mortgage”, which were popular at the time. Only much later did we realise we’d been signed up to a Stakeholder Pension Plan.

This was entirely unsuitable, as we did not pay UK tax and therefore did not need tax relief. Plus, according to the pension rules at the time, it had to be used to buy an annuity, meaning there would never have been a lump sum to pay off the mortgage. 

It was only when the mortgage fell due for repayment in the mid-1990s that the full story emerged. We had divorced by this time. There was more than enough money in the pension plan to pay it off, but it was impossible to access as it had been set up in my former husband’s name. 

Our divorce settlement split the pension between us, but in order to get money paid out I had to go back to the South African High Court to change wording in the divorce settlement, and then the Family Court in the UK to get a pension sharing order. 

This took an inordinate amount of time and, because the mortgage needed to be repaid, we ended up selling the house.

When I eventually got a pension sharing order, I was then told I needed to swap my share of the pension into another fund. At this point I gave up. I was completely broken and could not face any more fighting.

Time passed. It is now 2023 and I am 72 years of age. On a recent trip to the UK I decided to try to access the pension, which I understood I could draw in its entirety because of changes to the pension rules. 

I called the pension provider, and an adviser agreed they had a pension sharing order on record, and that I was entitled to 50pc of the pension. 

However, in order to draw down funds I have to nominate a fund into which my share can be paid. So I have now hit another problem. I am resident in South Africa and it appears many funds cannot accept transfers from non-residents. 

Does this mean that I can never access the money without going back to the UK to establish residency (something I cannot afford to do)?

Once again I am in utter despair. I’m not a stupid woman. I have had a credible academic career and worked at one of South Africa’s leading research intensive universities. However, because of the action of two greedy young men in shiny suits who sold us a pension on that day in 1988, I’m feeling beaten again. 

Any advice you can offer would be so welcome. 

Regards,

Dr Chrissie

Dear Dr Chrissie,

I have some good and some bad news for you. 

HM Revenue and Customs allows anyone from anywhere in the world to open a UK pension. So the good news is that, in theory, it is possible for a pension provider to accept a transfer from another UK pension scheme even though you are a non-resident of the UK and live in South Africa. 

The problem, as you have already encountered, is that many pension providers won’t open the pension for you – even though HMRC allows it – because they are concerned about local regulations. 

Nevertheless, there are a few options you could try.

There are financial advisers who specialise in helping UK expatriates in South Africa – but not many. It might be a good idea to contact one of these specialists for help identifying an appropriate UK pension provider. 

You could also consider UK-based International Self-Invested Personal Pension providers (SIPPs), which allow customers to draw down from the pension wherever they are in the world. 

Alternatively, if you have a UK address and bank account, you could try an online pension provider, but you will need to pass its verification checks. Once you are through the checks, you can make withdrawals (usually to a UK bank account). 

Unfortunately, transferring the pension to South Africa is unlikely to be an option as there are no longer any Recognised Overseas Pension Schemes, or ‘ROPS’, in South Africa. 

These are designed for people who want to transfer their pensions away from the UK, but many ROPS have been vehicles for scams in the past and the rules on transferring to them have consequently tightened. 

Many schemes that used to be on the list, including in South Africa, are no longer eligible for this status – but for others interested, the list of ROPS is here: https://www.gov.uk/guidance/check-the-recognised-overseas-pension-schemes-notification-list.

Assuming you do find a pension provider that will accept your transfer, make sure you are aware of its fees and the investments it offers for your pension. It is always a good idea to compare a few options. 

You will also need to be particularly mindful of your tax obligations because both you and your ex-husband were crown servants for the British Council. 

While in most cases income from UK pensions is tax-free for South African residents, this excludes those whose pension benefitted from their position in public office in South Africa.

Although this was not a workplace pension, your husband was presumably paying into the pension with proceeds from his work, and the pension may therefore be deemed to have benefited from it. 

This means that taking income from the pension while you are resident in South Africa may incur South African income tax.

You might feel this is a price worth paying to finally have access to half of that pension.