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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 seen as ‘captive money’ until you reach the age at which you can take benefits (from 55) and most people rarely take 100% out on their 55th birthday.

The true cost of your investment is not whatever your advisor has told you are the fees (e.g. 1% for 10 years) but it’s the amount that is not working for you. This is clearly a smoke and mirrors exercise. If your advisor has told you that 1% a year will be deducted from the cash account for 10 years it sounds a lot more palatable than saying “we’re going to take 10% out of the pension now”. However the truth is the latter. As you will never see that 10% cash in your own hands and it is not invested to grow so that it creates a future income for you then you should consider it an up-front charge.

Here’s an example to illustrate the point. This is a snapshot from a client who transferred their UK pensions to a Malta-based QROPS in 2016:

Policy Premium £303,545.98
Total Value of Assets £290,004.96
Cash Balance £29,076.09
Total Policy Value £319,081.05

The client is 49 years old and knows that he can’t touch any of the pension until he is 55. So, 3 years ago £303,545.98 was transferred. His advisor is telling him that he now has £319,081.05 which represents growth of 5.3% in 3 years or compounded growth of 1.7% per annum.

That growth alone is quite disappointing. The reality is even worse. The client will never see any of that cash balance meaning that the true value of his pension is £290,004.96, 4% less than what he started with.

So, where is the ‘cash balance’? It’s there on paper but you’ll never see it in your hands. In truth this money has already been paid out in commission to that advisor who was so passionate in his conviction that the best thing for your pension would be to transfer it from the UK to Malta.

QROPS ADVICE FOR EXPATS

WHY CORONAVIRUS COULD BE GOOD FOR YOUR PENSION

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What Happens to my QROPS if I Move Back to the UK?

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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 #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 #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 #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

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...

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...

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.