UCIS investments stand for Unregulated Collective Investment Schemes often sold within other products. For example, UCIS in QROPS or Sipps or overseas insurance bonds (aka investment bonds).
In the UK, UCIS marketing to retail clients was banned from around 2011, and since then they have rarely been used within SIPPs recommended by UK regulated advisers. SIPP trustees were warned against allowing UCIS investments in 2013- in any capacity.
Why should you not use a UCIS in QROPS or SIPPS ?
The reason is that UCIS are not regulated, they are often not properly audited, have no third party oversight, and wild promises are made about returns with little to support the claims. They are also the last bastion of very high commission payments and charges. In the UK UCIS were responsible for many of the mis-sales from 1999 through to 2008 and, clearly, the UK regulator deemed them inappropriate for retail investors.
What is a UCIS ?
In essence if your investment is in non-tradeable, illiquid assets or novel investments like wine, rare coins, commodities, cars, car parks, storage or anything else you can think of that is not on a regulated audited marketplace, then it is probably a UCIS.
The Reverse Gear
We are getting more and more enquiries from expats about moving their pensions from QROPS back to SIPPs. The reasons, primarily, are the high fees and commissions of the underlying investments and poor fund performance. Often the Double Tax Treaty renders the original recommendation for a QROPS pointless, in any event. The problem for the reverse gear is that a decent UK SIPP trustee is unlikely to accept a UCIS investment, leaving the QROPS holder with a problem.
Brexit and the OTC 25%
The Overseas Tax Charge of 25% that affects QROPS transfers, coupled with concerns that Brexit will lead to the UK leaving the EU, have added to a rethink of the QROPS sale being the default for all expats with UK pension.
UCIS, QROPS and SIPPs
I just want to relate two issues that have arisen when expats have wanted to apply the reverse gear and move to a more regulated, lower cost, SIPP.
- We have clients that were sold QROPS holding UCIS, where the fund has been suspended, and there is little to no value until the underlying investments are properly liquidated (even then there may be no value). In effect, this prevents a transfer to a SIPP, as the SIPP trustee will not accept the unliquidated investment.
- Not every UCIS is toxic and, if invested in an asset class for sophisticated investors that know their market, they can do well. A limited portion of any investment can utilise non-regulated investments in our opinion. However, even if the UCIS in QROPS or SIPPs is performing well, the new regulated SIPP trustee will not accept it as the UK regulator has now imposed new capital adequacy rules on trustees who hold UCIS products to deter them further.
In both these instances of UCIS in QROPS , does the client wait and hope there will be a reasonable return of funds at a distant point in the future without guarantee, or write down the investment value accepting less, in favour of the cost savings going forward- a difficult choice
UCIS in QROPS or SIPPs
For the vast majority of pension investors, a UCIS is wholly inappropriate in terms of risk of capital, lack of regulation and lack of flexibility for the reasons stated above, and even for sophisticated investors it should make up a small proportion of their overall investments.
Only agree to properly regulated investment funds from regulated investment advisers, which means asking the adviser to prove their licenses and PII (insurance) cover the investments they recommend.
This article was published on 13th June 2017
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