British expat in Spain transferred UK pension to QROPS and stunned by fees.

Mr. Johnson, a British expat living in Spain, was advised to transfer his UK pension to a QROPS in Malta by an international financial advisor. The advisor claimed that post-Brexit, his pension would be at risk and that a QROPS would provide greater control and potential tax benefits. (For more on common misconceptions, check out our QROPS Myths article.)

At the time of transfer, Mr. Johnson’s pension was worth £500,000. Like many expats, he trusted his advisor and went ahead with the QROPS transfer. The trustee for the QROPS was STM Malta, while his funds were placed in an insurance bond through STM Life in Gibraltar.

Mr. Johnson was under the impression that his pension was securely managed in Malta but soon realized that his money was actually being held in Gibraltar.

Of the £500,000, 10% was held in a cash account, while the remaining £450,000 was invested in various funds and structured notes. A 5% upfront fee was applied for the investments, leaving Mr. Johnson with only £427,500 actively invested after additional charges.

The bond also carried a 1% annual fee for 10 years, deducted from the cash account. Although these charges might appear as minor details on statements, they add up significantly over time. When broken down, it’s evident that Mr. Johnson was essentially paying a 10% upfront cost.

Further charges included an annual £750 for trust administration, £400 for bond management, and investment fees of up to 2.87%. The advisory firm also charged a 1% per year management fee.

In total, the annual running costs for Mr. Johnson’s QROPS were well above 5%, breaking down as follows:

• 1.31% for trust and bond management
• 1% for advisory services
• 2.87% for investment management

This high annual fee structure came after the initial £72,500 was deducted from his pension during the transfer.

How we reduced fees on QROPS for British expat in Spain

After reviewing Mr. Johnson’s case, we realized that the high upfront costs and ongoing fees were reducing the potential growth of his pension. Although it’s difficult to recover the fees already paid, we made significant improvements to lower the costs going forward.

• We assessed Mr. Johnson’s investment portfolio and switched to a more cost-effective, diversified portfolio with an average annual fee of just 0.5%. This change immediately cut his ongoing fees by more than half.
• We considered whether it would be cost-effective to move Mr. Johnson’s funds to a different structure, but given the surrender fees, it was determined that staying with the current plan made more financial sense for now.
• We eliminated the unnecessary 1% advisory fee, which offered little value beyond the occasional statement.

Structured notes are often marketed to expats as suitable pension investments, but for most retail clients, they are unsuitable. (You can learn more about the downsides of structured notes in our in-depth article.) Additionally, multi-asset funds provided by third party fund managers often come with layers of hidden charges, primarily to pay commissions to advisors.

By making these adjustments, we successfully reduced Mr. Johnson’s total fees from over 5% to under 2%, while ensuring he received higher-quality advice and improved pension management moving forward.