The door has opened wider for expats who want to transfer their UK final salary pensions to an offshore QROPS.
The issue is the rules say any pension or pensions worth £30,000 or more must have a transfer value analysis carried out by an IFA but many are unwilling to recommend a transfer because they fear clients who lose money may sue them in the future.
But City watchdog the Financial Conduct Authority (FCA) is trying to ease the way for retirement savers by relaxing the rules to allow expats more leeway in pushing a transfer through even if their IFA objects to the move.
Guaranteed retirement income
Final salary pensions offer guaranteed retirement income and other benefits, but these are rarely matched by a private pension that pays according to fund performance and comes without any guarantees.
Meanwhile, final salary schemes typically do not provide pension freedoms for withdrawing retirement cash from the age of 55 like private pensions.
The FCA says: “Where a client has received a personal recommendation they may choose to take a different action to the one that was recommended.”
If you are an expat wanting to move a pension, but find the way blocked by an IFA, here are the steps for transferring your retirement savings to a QROPS.
Get a transfer value analysis
Talk to an IFA and give them written consent to draw up the transfer value analysis (TVA).
The TVA is a report that compares the current and future values of a pension and other benefits, like spouse pensions and guaranteed annuity rates.
The IFA will also give you:
- A risk profile, which indicates if you want a safe investment or are ready to stand some losses to gain higher returns.
- A breakdown of your financial goals and the levels of investment and saving needed to reach them
- An overview of the most suitable QROPS that meet your financial circumstances
- A list of set-up and ongoing QROPS charges, including if the QROPS transfer charge applies to your switch.
The different QROPS
QROPS are not a one-size fits all option, they can come off-the-shelf, as bespoke solutions or somewhere in between.
Often the options are based on the transfer value of the incoming fund and some QROPS providers only offer a single product aimed at a specific target market, ie funds of more than £100,000.
The best tip is to tailor a QROPS to the country where you live and your personal financial affairs rather than pick a particular product, such as a Malta QROPS.
The different products fall into two main categories:
- QROPS Lite –Typically a managed pension offering limited funds for expats transferring in pots of less than £100,000. These QROPS were introduced as scaled-down versions of a full-blown QROPS to reduce charges and open the market for retirement savers with smaller funds.
Expect a fixed annual fee rather than a charge as a percentage of the fund value.
- Standard QROPS –For funds of more than £100,000. These pensions can come with fixed fees or a percentage charge that often starts at 0.5% of fund value.
Within this category are self-managed, part or fully-managed funds.
Expect a set-up fee ranging from £500 to £2,000 and an annual fee of a similar amount.
How a QROPS works
QROPS operate along the same lines as a UK SIPP, so the QROPS is the pension wrapper, inside the wrapper the provider offers an investment platform and the expat can select bonds, stocks, shares, exchange traded funds and other investments from the platform.
Inside the QROPS is generally a second layer of charges from fund managers. The charges will vary between providers and should be considered as part of the transfer value analysis.
The rules allow QROPS providers to offer pension freedom access to expats aged 55 and over, but many do not.
Finding a QROPS adviser
The FCA is keen to urge expats to have a UK pension adviser and a QROPS specialist based in the country where the expat lives.
This way, retirement savers should receive the best advice on the financial impact of leaving their final salary scheme and moving to an offshore pension.
IFAs should demonstrate that they have already completed QROPS transfers and that they are qualified to give pension and investment advice in the country where they are doing business.
Watch out for rogue advisors charging high fees who pose as qualified IFAs but are not professionals.
Check out their licensing certificates and qualifications with the local financial regulator and if they are not registered, do not take their advice.
HM Revenue & Customs publishes a list of QROPS that have self-certified that they meet the scheme rules. The list is published on line at least once a fortnight.
A UK pension provider cannot transfer any money to a provider that is not on the list.