This week we are talking about how to consolidate your UK pension – facts and myths? There are lots of websites that target expats encouraging them to transfer their UK pensions offshore. Every week, we will look at the most popular reasons, often cited as 10 Reasons to use a QROPS by overseas websites for moving a UK pension to a QROPS, one by one. How many of these reasons for moving to QROPS are valid?
This is our sixth article and today we focus on the extensive use of Consolidate Your UK Pensions.
The reason given why you should Consolidate your UK pensions is it makes it easier to administer and reduces costs if all the pensions are in one place, with greater flexibility and investment powers.
Is this true?
Well, yes, often it is true that if you Consolidate Your UK pensions it would make the administration easier and perhaps offer some advantages. We do make the case for this ourselves but we do so on the basis of best advice, and part of best advice is considering “where” you Consolidate your UK pensions . This is the point where a good argument, or consideration, is actually hijacked because it is not necessarily the case that you should Consolidate Your UK pensions to a QROPS or ROPS or even a SIPP. Neither is correct, you should only consider to Consolidate your UK pensions with an eye on future objectives and plans.
QROPS / ROPS – Consolidate your UK pensions
We agree that the statement in itself in not a myth, but why is it used purely for QROPS or ROPS?
UK pensions have a robust system of ensuring charges are disclosed. Many QROPS websites state that the UK pension system has high and hidden charges. What is the saying about “people in glass houses…..”?
In fact, QROPS / ROPS the level of hidden charges and costs are far higher overseas- in our experience.
In many expat jurisdiction there is no requirement to disclose all the fees and commissions and the failure to disclose them is not illegal as it is in such jurisdictions like the UK. By hiding them overseas, and pretending that charges are higher “onshore” we have a dichotomy of fact.
Trustees overseas do not have the same regulation or obligations as the UK and they are not enforceable non-UK trustees to the same extent . Therefore, they allow unregulated investments or expensive commission based structures that trustees in the UK have been warned not to accept by the FCA- vigorously enforced since 2013.
The overseas advisers prey on the news of mis-selling in the UK which is publicized and sometimes 30 years old, and pretend it is the case now. The reality is that the widespread abuse overseas receives little publicity, but has been far more prevalent over the last 5 years.
So, the overseas suggestion is, Consolidate your UK pensions into a QROPS or ROP with an all-in 1% charging structure – failing to mention the expensive offshore insurance bond with non-clean ( commission ridden fees ), commission based structured products and commission based funds with entry or exit penalties. Indeed all of these undeclared elements could dramatically increase the costs and reduce the overall pension in retirement substantially.
UK pensions – Consolidate your UK pensions
Many websites often fail to mention that UK pensions can also be used for consolidation on a low cost, highly regulated platform, with clearly disclosed fees and clean funds. Such UK pensions often can actually reduce the overall fees by consolidation. Bear in mind, some UK pensions like SIPPS, allow access to thousands of funds and also a range of currencies.
Summary – a FACT, not a MYTH, but more consideration required.
Do not be tempted to Consolidate your UK pensions into a QROPS unless you understand your objectives and a proper analysis of all the fees has been undertaken. In most historic cases, people have found out that to Consolidate Your UK pensions into a QROPS has resulted in substantially reduced pension incomes for many and they are now forming action groups. However, the term Consolidate Your UK Pensions is indeed a FACT, and should be considered.
If you Consolidate Your UK pensions what should be considered?
A professional adviser will only consider consolidation if-
- The fees are lower as a result,
- There are limited funds available in the old contract that perform poorly,
- The funds do not meet the clients’ risk profile,
- The client wants greater investment choice,
- A proper comparison and analysis of the costs has been undertaken,
- The effect of any penalties for transferring has been taken into account, and
- Any loss of guarantees is properly assessed.
This is the sixth article about 10 Reasons to use a QROPS- the facts and the myths and we will be publishing more soon
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
Authors- James Caldwell
Chris Lean
This article was published in 8th December 2016
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