There are lots of websites that encourage expats to “take control of your pension” in order 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 and how do they compare with using the UK counterpart- the SIPP?
This is our fourth article and today we focus on the extensive use of the term “Take Control Of Your UK Pension” and what this means for QROPS.
Take Control Of Your Pension
The utopia promoted by the websites is that your current UK pension or final salary scheme should be removed from the control of the UK government or the previous employer that is “about to go bust”, and this positive move will lead to you being able to take control of your pension and remove perceived risks.
The standard advice is to move the current scheme outside of the UK, where you can avoid the UK regulations, and move it to a QROPS.
There are many issues here:
- Moving away from the “control” of the UK actually means less regulation, which in turn means far less protections, dramatically increasing the risk- although the very opposite is cited!
- A final salary pension is not controlled by your previous company, but actually by appointed independent pension trustees that are highly regulated, something that should not be given up lightly Roles and Responsibilties
- The benefits being given up may outweigh those that are supposedly gained.
However, for those that want to have more effective control of their pension, often a QROPS is the worst solution as, in reality, they hand control of their pension over to poorly regulated ( in some cases ) QROPS trustees with little opportunity for comeback in the event of a problem.
Transfers of smaller pensions to QROPS are sometimes 5 times the price of a simple UK personal pension scheme. In fact, for larger funds up to £800,000 a SIPP is a another ideal product to enable you to take control of your pension.
Both of these options are well-regulated in the UK-
-offer protections,
-are not under company or government control,
-often ban toxic/illiquid investments and,
-UK IFAs offer low fee non-commission earning investment funds.
QROPS – Take control of your pension
- Do QROPS give you more control than a small UK pension scheme or a SIPP?No, You have less control of your pension. The offshore trustees have control. In fact the trustees are the controllers of your pension funds, exactly the same as in the UK, but without the same rigorous standards of protection or regulation.
- Are pensions offshore well-regulated and protected?No, offshore regulators take little interest in third country pensions and have no Financial Ombudsman Service. There is no cover by a financial services compensation scheme outside the UK if the pension fails through fraud/mismanagement. You are on your own when something goes wrong which is completely the opposite of the UK.
- Surely the offshore pension’s terms and conditions provide protection against something going wrong?Think again. This is an except (as an example) of such terms and conditions for a QROPS trustee with names withheld . In fact the member has signed away control completely.
“the Member indemnifies xxxx from all actions, suits, claims, demands, proceedings, liabilities, costs and expenses whatsoever which may be made against xxxx in respect of the Services provided that xxxx shall be responsible where such liability arises as a result of xxxxx fraud, wilful default or negligence.”
4. Well, I can always move my pension back to the UK if I need to, can’t I?
Some QROPS have no reverse gear and many charge hefty penalties for moving to another QROPS or UK pension. Most are sold with expensive insurance bond wrappers that are expensive to get out of and not accepted by competitively priced SIPP platforms.
Summary – Fact or Myth
The comment “Take control of your UK pension “ is a myth. The only people taking control of your pension is the offshore adviser and QROPS trustee, not you!
This is like selling a house, where you give control to the estate agent by giving them the keys to the front door without any comeback and free entry, and you only find out much the agent took in fees after the house is sold. Would you do this? In truth, your pension fund may be the same value as your house, so why move it without taking precautions.
In many cases, control is with the offshore adviser- often unlicensed to give investment advice – and the offshore trustees who actually have the identical responsibilities as UK trustees but without equivalent regulation or protection for you.
This is the fourth 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 11th November 2016
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