Background
Mr Green approached us early this year concerned about the fact that in the 8 years since transferring four UK pensions to a Guernsey-based QROPS he has achieved zero growth and has concern over repaying a loan that was taken out.
In 2011 four schemes worth almost £600,000 were transferred to a QROPS. Mr Green was told by his advisor that he can access some of his pension immediately by taking a loan of 25% from the pension. Mr Green wasn’t told that he would be paying fees based on the entire amount and NOT net of the loan.
The trustees – Concept Group – charge £1,250 per annum (on the high side but not unreasonable) while the insurance bond provided by RL360 in the Isle of Man used to hold custody of the investments and provide administration charge 1.075% per annum, not for a fixed term but for the entire existence of the policy. After taking the loan this effectively increased the fee to 1.43%.
The finger of blame for such high annual fees does not point at the provider but rather the original advisor who took high commissions. The fees paid by the client spread over time to the provider are largely to rebate this commission with a surrender penalty in place that ensures that the provider will recoup the commission paid out at the start of the contract regardless of whether the policy is held for the long term or not.
RL360 provide the same policies at different levels of commission including one that pays zero commission. This is the solution favoured by transparent fee-based advisors as it places the prosperity of the client first.
Furthermore an ‘investment advisor fee’ of 1% was put in place as well as commission paying investments that have failed to perform.
What we did
Mr Green had moved his investments to cash after experiencing disappointing performance and at the time of our first conversation he was so disillusioned that he wanted to surrender the policy entirely and move the money elsewhere. From a tax and financial planning perspective this would not make good sense.
Firstly, we clarified the situation regarding the loan with both the trustees and through an independent tax advisor to ensure that it will be repaid without an unwanted tax burden for the client. Secondly, we proposed a balanced investment portfolio made up of 20 different assets with an average cost of 0.5% compared to the 2-3% being paid on previous funds held.
On examining the structure, we evaluated the merit in surrendering the RL360 bond and moving to a more cost-effective structure. In total, we examined five different options from different providers based on either surrendering now or waiting two years for the surrender penalty period to expire.
We involved Mr Green in every step of the process and explained things clearly and transparently. We arrived at the conclusion that we should wait two years for the surrender penalty to disappear entirely and then move to an alternative policy that will dramatically reduce the fees.
If Mr Green had not sought our advice he would still be committed to paying fees of £87,500 over the next ten years (for the trust and bond – not including investments). We have reduced this to £18,000 demonstrating that by working with us he will save almost £70,000 over the next 10 years.
QROPS ADVICE FOR EXPATS
WHY CORONAVIRUS COULD BE GOOD FOR YOUR PENSION
One thing I’m telling all my clients at the moment is to read beyond the headlines to fully understand the economic impact of the reaction to Coronavirus. I hope that if you’ve made it this far beyond headline of this article that you’ll read on to find out what I...
QROPS CASE STUDY #3 – Mrs White, British expat in Italy, STM Malta QROPS
Mrs White is a professional from the UK. She is in her mid-40s and has been living in Milan for several years. She was approached by a large offshore financial advisory group with offices in Milan. They convinced her that her UK pension would be better if it was...
QROPS CASE STUDY #2 – Mr Rossi, Italian back in Italy after working in UK, Malta QROPS
Background Mr Rossi is an Italian citizen who worked in London for several years before returning home. He was approached by a large international financial advisory based in Milan and strongly persuaded that he would be better off if he transferred his UK pension to...
What Happens to my QROPS if I Move Back to the UK?
If you have left the UK and been advised to transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) but now intend to return to the UK then you need to consider how this pension will now be treated. While many expats and professionals who have...
QROPS MYTH #9 – Brexit will affect your pension
Let’s look at this realistically. If you’re an expat in Spain, for example, and the UK leaves the EU do you really think that your UK-based pension provider will be unable to make a payment to you now that the two countries are not joined by the EU? Is this not...
QROPS MYTH #8 – If you leave your pensions in the UK you’ll have to pay income tax
We often hear the argument that Malta is a superior home for your pension as it has double taxation agreements (DTAs) with numerous countries meaning that regardless of where you retire you won’t pay tax at source but only in Malta. It is certainly true that pensions...
QROPS MYTH #7 – Structured notes are suitable investments
A consequence of transferring your pension away from the UK opens you to the risk that your funds will be placed into investments that would not be allowed if it was still under the watch of the UK’s Financial Conduct Authority. There have been many cases of clients...
QROPS MYTH #6 – You need to keep a large proportion in cash
Any investment portfolio should always contain a small proportion of cash but by small we mean around 2-3%. If your pension has a cash account of somewhere around 10% then you might want to question whether this money really exists. Consider it this way, pensions are...
QROPS MYTH #5 – QROPS are ‘approved by HMRC’
HMRC do not approve anything! It is not their function. Their purpose, as stated on the website https://www.gov.uk/government/organisations/hm-revenue-customs is: “We are the UK’s tax, payments and customs authority, and we have a vital purpose: we collect the money...
QROPS MYTH #4 – You’ll be able to access your pension sooner if you transfer it
This is not such a common myth nowadays but in the early days of QROPS there were many advisors going around the world ‘pension busting’ and either helping people to access their pension sooner by either transferring to a jurisdiction that allowed access from a...
QROPS MYTH #3 – Your UK scheme is going to go bust
It’s true that there have been many high profile defined benefit pensions that have gone bust in recent years. The fundamental principle of the way that defined benefit pensions are structured can indeed sound like a risk. A defined benefit pension will promise to pay...
QROPS MYTH #2 – You need an insurance bond
When it comes to QROPS there are a few ways of administering the investments – although most people are only ever presented with one option. As the QROPS trustees are not set up to provide this service (they merely provide the legal structure and fulfil normal trustee...
QROPS MYTH #1 – Your pension is at risk if you leave it in the UK
What risks? Brexit? Tax? Schemes going bust? What risks have you been told about? The only risk is believing someone who is giving you advice that is biased in their favour. If someone is going to profit from helping you to transfer your pension overseas then you need...
UK PENSIONS AND DEFINED BENEFIT TRANSFERS
Closure of UK bank accounts creates pension problems for EU residents
EU Residents in search of solutions to receive payments from UK pensions amid bank account closures. As has been widely reported, a number of UK banks have announced that they will be closing the accounts of their EU resident clients by the end of 2020 as a result of...
WHY CORONAVIRUS COULD BE GOOD FOR YOUR PENSION
One thing I’m telling all my clients at the moment is to read beyond the headlines to fully understand the economic impact of the reaction to Coronavirus. I hope that if you’ve made it this far beyond headline of this article that you’ll read on to find out what I...
The ‘Greta Thunberg Effect’ and The Rise of ESG Investing
By Adam Smith As you have probably heard Greta Thunberg had quite a 2019 which resulted in her being named the 2019 Time person of the year. The level of attention she has brought to the climate crisis is quite astonishing especially considering she was 16 years old...
QROPS CASE STUDY #3 – Mrs White, British expat in Italy, STM Malta QROPS
Mrs White is a professional from the UK. She is in her mid-40s and has been living in Milan for several years. She was approached by a large offshore financial advisory group with offices in Milan. They convinced her that her UK pension would be better if it was...
QROPS CASE STUDY #2 – Mr Rossi, Italian back in Italy after working in UK, Malta QROPS
Background Mr Rossi is an Italian citizen who worked in London for several years before returning home. He was approached by a large international financial advisory based in Milan and strongly persuaded that he would be better off if he transferred his UK pension to...
What Happens to my QROPS if I Move Back to the UK?
If you have left the UK and been advised to transfer your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) but now intend to return to the UK then you need to consider how this pension will now be treated. While many expats and professionals who have...
HAVE YOU LEFT, OR ARE YOU LEAVING, THE UK WITH £1,000,000 IN PENSIONS?
Many professionals – both British and other nationalities – leave the UK to continue their careers abroad with pension savings which could create an extra tax for them in retirement. As companies react to fears around Brexit, many professionals are being relocated to...
FREE QROPS CONSULTATION
We’ve helped countless expats and international professionals with their existing QROPS. Through a free consultation we can help you to understand several key matters:
- The existing structure.
- The commissions paid out.
- The charges for the structure.
- The suitability of the underlying investment portfolio.
- The tax implications according to your current and future residence.
- An examination of the transaction history to understand where and why fees have been leaking out.
- Alternatives to reduce your fees and improve management.
- A detailed report and written evaluation of the options available to you.
- Transparent, independent, fee-based, UK-regulated advice.