(Bloomberg) — For the millions of expats who leave their pension pots behind as they work in the world's financial centers, getting that money has become an expensive and risky experience.

Often earning more than they would back home and holding substantial assets and pensions, the growing population of globally mobile workers has become a prize for financial services providers. Agents offer to help people move their pensions and investments, freeing them from having to deal with cumbersome paperwork or the maze of cross-border laws. For years, such services — among them funds that can charge exorbitant fees or lack transparency about risks — often operated beyond official scrutiny.

Regulators are finally starting to take action, with investigations into Brite Advisors, a pension transfer specialist suspected by Australian and US officials of mishandling client funds.

The Australian Securities and Investments Commission says Brite repeatedly failed to file financial statements and was a danger to the public and a Federal Court command is in place to close the company. In the USA, the Securities and Exchange Commission has started judicial proceedings against British business in the US.

At stake is the biggest asset many have outside of real estate: their retirement savings. In Australia, officials say tens of millions of dollars in customer funds at Brite are unaccounted for and have frozen account as they investigate the company, leaving customers without access to their money and wondering how much they can recover.

“There has been a lot of frustration and sleepless nights,” said Mike Rose, a 61-year-old dual British-Australian citizen living in Sydney who says he has lost access to AUS$285,000 ($186,000) in retirement savings. with Britain. “I feel… so, so bad for people worse off than me.”

A British officer, Tommy Li, based in Hong Kong, declined to comment and its CEO Mark Donnelly did not respond to requests for comment.

More than 280 million people are estimated to live outside their country of birth, and the number is expected to rise as more workers seek opportunities overseas, often leaving retirement plans behind.

While many leave those plans in place until they return or leave work, workers who know they won't be returning or those who have started careers overseas may choose to transfer their pensions. Some may want to simplify their retirement plans as they live in multiple countries and have joined several schemes, and see tax advantages in doing so.

Little data is available on the pension transfer business, but in the UK alone, more than 2.8 million pensions were undeclared in 2022, worth an estimated £26.6 billion ($34 billion), according to the Pensions Policy Institute.

“People build up a little pension pot in whatever jurisdiction it may be, and then they either have no idea what to do with it or how to get it, or even how to get information on it once they enough time passes,” he said. Jarrad Brown, a senior financial planner with Global Financial Consultants in Singapore, specializing in expat advice.

For those trying to move their pensions, out-of-sync tax regimes are among the biggest problems. UK pension savings are usually taxed on withdrawal, but contributions throughout an employee's career are not, while the opposite is usually the case in Australia. Holders of 401(k) plans in the US may incur a tax liability for moving their pension internationally, as well as an early withdrawal fee.

Offshore advisers, often based in places such as Dubai, Hong Kong and Singapore, say they will help people navigate Byzantine laws and minimize punitive tax payments. They also offer to consolidate and manage funds left behind in other countries. Many market their services through cold calling or social networking sites. In cities like Hong Kong, agents are also known to approach potential clients in popular expat hubs such as golf and tennis clubs.

Typically, such investment platforms are based in low-tax countries such as the Isle of Man, Gibraltar and Malta. The bottom line: let us help you move your dormant pension to another country on our investment platform and we'll make you better returns with lower taxes.

Such investments, however, can be slowly eroded by high commissions and fees, with owners sometimes not noticing for years that their nest egg is being depleted.

In some cases, customers say they were mis-sold complex financial products not intended for retail investors, or their money was put into inappropriate investments. A class action is underway in the Isle of Man alleging companies, including Friends Provident International, failed to sell high-risk products without doing due diligence to expats transferring their pensions. The plaintiff is seeking compensation for an alleged loss of £200 million.

Friends Provident International told Bloomberg the legal claim “misrepresents the product and associated services” it offered and that policyholders and advisers were free to choose investments. “While we regret that people have lost money as a result of their investment choices and sympathize with their plight, we are confident in our position and are strongly resisting the claim,” she said in a statement sent to email. A decision is expected at the end of this year.

Bypassing advisers is not easy, as many find the paperwork too cumbersome to handle on their own and the tax laws and treaties too complicated to understand. Some say it can take months or even years of frustration to get retirement plans moving.

“My feeling is the best thing to do is wait until I retire and then collect my various checks around the world,” said 40-year-old software engineer Wendi Li, who is from the US but has lived and worked abroad since 2008 in several. countries in Asia and Europe.

However, doing nothing until retirement is not a solution for everyone. Foreigners may face tax implications down the line or penalties for not disclosing income. Simply tracking foreign pensions can be a painstaking task as funds undergo mergers or name changes. Some people simply forget their passwords and get locked out of their accounts.

Rose, who moved to Australia in 1997, built up multiple pensions during a career working for global technology firms including NEC Corp. and Cisco Systems Inc. He says he tried to transfer two of his four UK pensions to Australia himself.

He filled in at least 20 forms and sent another 100 pages of information to the British pension, to no avail, he says. Now, his Brite Advisors account has been frozen and he is unsure when he can finish transferring £90,000 of his pension savings to his adopted country.

Paul Gallagher, an Irish-born chemical engineer living near Boston, says he realized he had to report his UK pensions as foreign assets when he started thinking about retirement.

Having worked in the UK for 12 years, he had three UK pensions. Now 63, he says he found there was little clear guidance on how to report these plans on U.S. tax returns. He eventually combined his pensions and transferred them to the US with the help of an adviser and a lawyer, a process he said was long and expensive. “It was stressful,” he said.

Global regulators investigating Brite are shining a light on what has long been a dark corner of personal finance. In Australia, liquidators are going through a web of money-related transactions that spans the globe.

Customers of the US unit were mainly UK expats in the US, who initially paid Brite a one-time transfer cost followed by an annual fee of 1% of assets, according to the SEC. In its 31-page complaint, the regulator said the loans secured by the client's assets were the main source of funding for its operating expenses and that this was not disclosed. Brite has not yet responded to complaints in the US or Australian court cases.

Recently, one of Brite's creditors, Heritage Management Consultancy, filed a winding-up petition against its Hong Kong business. Court documents are not available to the public.

While there are reputable players in the pension transfer sector, the cross-border nature of financial activity means companies can fall beyond the reach of regulators, industry officials say. Once a person moves money out of a particular jurisdiction, the authorities there can do little to help and cases tend to fall through the cracks.

Margaret Snowdon of the UK Pensions Advice Taskforce, an industry-wide group aiming to improve consumer protection, said one of the issues with offshore pension transfer advisers was the many and unexpected fees that can add to and drain the value of retirement savings. She also said that officials have gradually realized that it is a global issue and not limited to British overseas workers.

“We thought it was a UK-specific problem, but over time we started to realize that it wasn't at all. We found that there is a complicated international picture,” said Snowdon.

The UK's Financial Conduct Authority did not respond to multiple requests for an interview, while the SEC referred Bloomberg's questions about Brite to the FCA.

“The pension schemes themselves are responsible for carrying out due diligence on transfers to other pension schemes and making sure they comply with the requirements placed on them,” a spokesman for HM Revenue & Customs said in a email.

Niall Coburn, a former corporate investigator and senior lawyer at ASIC and now director at Coburn Corporate Intelligence in Brisbane, is leading the case involving more than 2,000 international claimants in the class action against Friends Provident International and others. They claim that the products in question were only suitable for sale to professional investors and not to retail investors. London law firm Signature Litigation LLP is leading the case.

“This case demonstrates serious international regulatory gaps to protect elderly and vulnerable investors internationally,” Coburn said.

Experts say the cases underscore the need for expats to better protect their retirement plans and be wary of high-risk strategies. But people like Rose say they wouldn't have gotten involved with companies like Brite Advisors in the first place if there were clearer guidelines for expats who want to move their investments.

“It's just a very frustrating process,” he said. “At the end of the day, it's your money and people don't give you access to it, whether it's from misuse or a lawsuit, even if it actually belongs to you.”

To contact the authors of this story:
Amy Bainbridge in Melbourne at (email protected)
Ainsley Thomson in Wellington at (email protected)