Transferring a pension to a QROP is complicated and many factors need sorting out before going ahead.
Seven points need considering if you are consolidating your current pensions in to a QROPS.
Your personal circumstances and financial objectives have a big bearing on whether any transfer is suitable or not. Specific risks are involved if you have money tied up in an occupational salary-related pension.
Because of the issues involved and the complexity of offshore pensions and financial planning, to make absolutely sure you have considered everything that has a bearing on your financial future; always contact an independent financial advisor.
The Financial Services Authority should regulate the advisor in the UK to protect your interests. The advisor should also demonstrate a background in successful recent QROPS transfers.
Seven key decision about a QROPS
What are the charges for transferring your UK pensions to a QROPS or an older less cost-efficient QROPS to a new scheme?
Weigh up what you will lose from your fund when the transfer value is calculated against the fund value.
Look at the costs of administering the fund on a year-on-year basis
Is your advisor charging a fee or commission based? If the provider pays commission, this comes out of your fund somewhere along the way.
If you are an expat, a QROPS is most certainly a more tax effective and cost efficient retirement savings plan than keeping your money in a UK pension plan, a SIPP or SASS.
Any financial adviser pushing a SIPP or SASS on an expat needs to explain the financial thinking behind his or her actions.
A QROPS has more features than any UK pension plan, and is generally the better option unless you have a long-running occupational scheme.
In the end, a QROPS gives more purchasing power because benefits can be paid in any major currency, that means exchange fluctuation problems with Sterling are eliminated.
A QROPS also removes any obligation to buy an annuity and any inheritance tax issues as the pension fund is excluded from the investor’s estate.
Consolidating multiple pension plans
Transferring each pension fund should be considered on its own merits. In theory it makes sense to consolidate because of administration costs and other ongoing charges, but if one pension is an occupational pension or presents specific problems in transferring, then you can have a QROPS for the others and leave one or more funds as they are.
Loss of benefits
It’s OK to look at loss of benefits, but don’t forget to consider any gains as well. Your advisor should put together an illustration of how your retirement strategy will look at the end of the transfers – that’s when the gain or loss of benefits should be considered.
Many pension providers have two values for your pension – the fund value with them and the fund value they will transfer to another pension provider – transferring can cost a large percentage of a pension so you need to know as early as possible what this transfer value will be.
You can decide how to invest your own money in a QROPS, or take the alternatives of sharing investment decisions with a fund manager or leaving the fund manager to make all the decisions.
Whichever way you go, you need to consider that the higher the likely returns, the more risk that is attached to the investment. You must assess your attitude to risk and how comfortable you are with some investments.
Your financial advisor or fund manager should be able to explain the pros and cons of any investment.
Transferring your pension funds in to a Qualifying Recognised Overseas Pension Scheme (QROPS) and just leaving the cash sitting there is not a retirement strategy. You and your advisor should set a suitable gap between reviews to make sure your QROPS takes advantage of any new products, legislation and tax rates.
You may have to pay for this advice, so you should consider this as part of your pension administration costs.
Remember you also have to consider if your financial advisor is in a position to give ongoing advice.