Many UK pension providers are currently reviewing their processes for paying pensioners resident abroad. Up to now, the Bank of Scotland's Transcontinental Automated Payment Service (TAPS) service has been widely used to pay pensions in the 30-odd countries which accept TAPS payments, but BoS is withdrawing the service on 31 December 2009. There is no mention of this on the BoS website, although we understand BoS has written to inform existing clients.

The move may be connected with new regulations* which will not allow banks to deduct a charge without the payee's consent, for transactions within the European Economic Area involving currency exchange: the payee must receive the full amount of the transaction. Up to now, pensioners have not necessarily been specifically informed that bank charges are deducted from the pension payment, or asked to sign a consent form.

* The Payment Services Regulations 2009 (SI 2009/209), coming into force on 1 November 2009.

These regulations have been laid in conformity with the Payment Services Directive 2007/64/EC (PSD). The goal of the PSD is to improve the competitiveness of the EU by integrating national payment markets and to support the creation of a Single Market for retail payment services, reducing the total cost of payments in the EU. It affects payment service providers (mainly banks) whose main activity consists in the provision of payment services to payment service users. Pension funds themselves are only indirectly affected (they may wish to review their communications with pensioner members). The FSA has provided further information.

Under Art 42 of the Directive, users of a payment service must be told in advance of

1. all charges payable by the payment service user to the payment service provider and, where applicable, the breakdown of the amounts of any charges;
2. where applicable, the interest and exchange rates to be applied or, if reference interest and exchange rates are to be used, the method of calculating the actual interest, and the relevant date and index or base for determining such reference interest or exchange rate;

and given the chance to decline or terminate the service.

Art 67 of the Directive sets out the circumstances in which charges may be deducted from amounts transferred and amounts received. This is transposed into UK law via Reg 68:

Amounts transferred and amounts received

68. (1) Subject to paragraph (2), the payment service providers of the payer and payee must ensure that the full amount of the payment transaction is transferred and that no charges are deducted from the amount transferred.

(2) The payee and its payment service provider may agree for the payment service provider to deduct its charges from the amount transferred before crediting it to the payee provided that the full amount of the payment transaction and the amount of the charges are clearly stated in the information provided to the payee.

(3) If charges other than those provided for by paragraph (2) are deducted from the amount transferred

1. in the case of a payment transaction initiated by the payer, the payer's payment service provider must ensure that the payee receives the full amount of the payment transaction;
2. in the case of a payment transaction initiated by the payee, the payee's payment service provider must ensure that the payee receives the full amount of the payment transaction.

Although these changes might come as a surprise to pension providers, the banks have had plenty of time to prepare. The Government undertook a three-stage consultation process:

• in July 2006, the Government consulted on the European Commission's proposal for a Directive. The consultation responses informed the Government's approach to the European-level negotiations;
• in December 2007, the Government published a consultation on its policy approach towards implementing the Directive, and a summary of responses with the revised approach to implementation was published in June 2008; and
• in July 2008, the Government consulted on draft Regulations.

All published documents can be found via this page.

Footnote

Fortunately for pension funds which have been accustomed to using TAPS, several alternatives remain available. Citibank is one: it holds the Government contract for paying state pensions overseas. We understand its WorldLink service, which covers more than 100 countries and may be cheaper than TAPS, is fully compliant with the Directive and the Regulations.

Acknowledgement