Cheap QROPS
Once you have made the decision to emigrate and transfer your pension into a QROPS, you have to decide which scheme to choose. Given that a QROPS is a financial product, you need to make sure that you are getting it for the right price.
QROPS funds are run by fund managers in the same way as other financial services, and as such are subject to charges and fees. But how do you tell what is a good deal, and how do you tell which charges are unreasonably high?
When QROPS were first introduced in April 2006, QROPS fund managers’ charges were very high. Some pension trustees charged up to 5% of the fund value per year. This seems outrageous compared to “normal” domestic UK pension charges. However, when you compare this to the 25% charge that the HMRC used to levy on funds leaving the UK before QROPS were introduced; QROPS scheme members would have found a 5% charge preferable.
HMRC keeps a list of approved QROPS funds on its website. The schemes span the world – there are around one thousand to choose from. Accordingly, now that so many schemes are available they are competing for your business. As such, fees have gone down since those early days. Some QROPS providers offer flat fees for the sake of transparency and easy budgeting. Now some fees are as low as £500 per annum – a considerable improvement on the 5% figure in the early days of QROPS.
Is your QROPS adviser impartial?
Some QROPS advisers are tied to particular QROPS providers, and as such cannot offer the whole list of HMRC’s approved QROPS funds. If an adviser cannot shop around all of the available schemes, they will not be able to offer the best price QROPS scheme. Further, if your adviser is limited to a small list of available schemes, their advice will not be the impartial financial assessment of the whole market that you need.
You get what you pay for
There are two considerations to bear in mind when you assess QROPS providers’ fees. Firstly, consider the level of service you get from the QROPS.
If you need a “plain vanilla” scheme without much variation from the norm, you should not be paying high charges as the QROPS trustees will not have to do anything outside of the ordinary. On the other hand, if you want a bespoke scheme that is tailor made around your specific needs, you may have to pay a higher administration charge.
Secondly, if you want the flexibility to chop and change the assets your pension fund holds, you need to be prepared to pay a higher charge to take into account the administrative costs of putting your requests into action. There are costs inherent in buying and selling assets, and your QROPS provider will want to pass these on to you. Some scheme members take a very active interest in the performance of their fund and want to intervene regularly – others are content to leave the fund alone from year to year. It stands to reason that those who leave the fund alone pay smaller fees, as their activities are not costing the QROPS fund manager anything.
Consider the whole picture
In addition to the fees and charges, consider the tax implications of purchasing each QROPS fund on your list. Your QROPS adviser will be able to guide you on this point. Generally speaking, you may have to weigh up whether it is better to pay higher charges for a QROPS fund in a jurisdiction that does not charge very much tax (if any) on pensions gains, and a higher tax regime with QROPS providers with low charges.
QROPS advisers as negotiators
Some QROPS advisers have such a large client base - they place millions of pounds of pension funds per year with various QROPS providers. Accordingly they have the bargaining power to negotiate discounts on fees and charges. In addition to discussing charges, a large firm of QROPS advisers might be better placed to press QROPS providers for better terms and conditions, and have better access to preferential financial products on the market.
What can your QROPS adviser do for you?
When making your final decision about which QROPS provider to choose, ask not what you can do for your QROPS adviser, but what your QROPS adviser can do for you. Will they deal with your existing pension providers on your behalf? This should be possible after you sign a simple letter of authority. QROPS advisers should be able to initiate the transfer of the funds and deal with any issues that arise, while you are busy packing for your retirement abroad.