Following on from a series of previous pension mis-selling scandals we had Equitable Life swallowing up the pension money of a million victims, and now we’re watching as the government in the UK erodes the value of a pension with loss of tax relief for many, and the proposal of even heavier taxation in the future depending on which party comes to power on Friday.
As if all that weren’t enough to have you running away from British pension options as fast as you can, we now learn that the FSA has identified a brand new pension scandal relating to pension transfer advice.
In this report we highlight the issues and ask, if UK pensions are facing yet another scandal, could your switching to a QROPS if you’re an expatriate actually save you from all of the negativity that abounds in Britain in relation to pensions?
The New Great British Pension Scandal
The Financial Services Authority in the UK has been investigating multiple complaints and its own concerns relating to the giving of pension switching advice to account holders. Many people have been realising lately that their pensions are underperforming and as a result, will be way off target for them when they retire.
As a result there has seemingly been an increase in the numbers of people looking to switch their pensions to a better performing option – and an increase in the number of poorly researched pension transfer choices given to clients by IFAs.
The FSA says it is concerned about two particular elements of advice given, the first being that some advisers have not taken the time necessary to investigate the current pension holdings of their client. The second is that unjustified fees have been being charged for the transfer of an individual’s pension.
With regard to the issue concerning an adviser not examining an individual’s current pension holdings, this is important because some pension schemes have complex structures that offer additional bonuses along the line depending on length and amount of savings for example, and not all pensions are so straightforward that you can judge their predicted future performance and results and returns on past performance and results. And with regard to charging an individual fees for moving their pension, these fees are unquestionably unfair – especially if the IFA is also paid a commission on the ‘sale’ of the new pension to their client!
Could QROPS Be the Answer?
QROPS, or qualifying recognised overseas pension schemes, are pension options particularly attractive for many expatriates and/or those who are planning to retire abroad. They are potentially suitable for those who have private or personal UK pensions worth at least £60k and who now live abroad, they may be ideal for you if you’re planning to move abroad within the next 12 months, you plan to be out of the UK for at least 5 years, and/or you have been out of the UK for 5 years already.
The main benefits of these pension schemes in a nutshell are that you never need buy an annuity with them so you can leave any unspent money to your beneficiaries, you can potentially take a tax-free lump sum withdrawal, you have far greater investment freedom, many come with a low cost charging structure, you’re removed from the UK’s ever changing pension rules and tax rules, and depending on where your QROPS is based and where you retire, you may be able to enjoy a tax-free pension income in retirement.
Clearly QROPS are exceptionally attractive pension options – but they are not suitable for everyone. And, just like someone in the UK who wants to transfer an underperforming pension to a new scheme, you’ll likely require advice to decide whether a transfer could be right for you…so how can you determine whether the advice you’re getting is the right advice?
Getting Good Advice
You need to be certain that any adviser you speak to is not only qualified in the provision of financial advice, but that they are experienced at working with expatriates like you, they are approved for the provision of QROPS information and assistance, and that they are independent and can therefore bring you recommendations from the entire marketplace.
You should ask to see client testimonials, regulatory and authorisation information for the company they work for, and you should make them clearly detail why any advice given and any recommendation made is a) right for you and b) better than what you already have in place.
Finally, as the giving of pension advice cannot stand alone in terms of your entire financial situation, expect a good adviser to look at and review your entire financial position, and work with you in the provision of ongoing wealth management advice. If you would like to speak to an adviser about your pension options, contact us and we will put you in touch with an advisory approved for the provision of QROPS advice to non-resident Britons and expats like you.
