Following the 2004 UK Finance Act and the subsequent legislation that came into force on 6th April 2006, which created the now well established QROPS market, statistics show that over £1.5 billion of UK pension money has been transferred to QROPS. As the market has matured, the once high set up and running costs have now become much more affordable for even the most modest pension pots.
Perhaps it is no surprise then that one of the most commonly searched for terms associated with QROPS is ‘low cost QROPS’. However we ask; what exactly makes a ‘low cost QROPS’? There are a number of elements to a QROPS transfer that will determine the level of costs that a client will pay, and the initial and annual QROPS providers’ costs (the trustees) are only one element of this.
This article takes a look at the different types of fees that may be applicable and will help you to establish what really constitutes as a low cost QROPS.
The QROPS Provider
The starting point is with the QROPS provider, who will be acting as the new trustees for your transferred pension benefits,and these can be based in a number of jurisdictions. At the time of writing Malta and Gibraltar are perhaps the most popular choice for expats (you can read more about why that is here ). A quick google search will bring you up with no shortage of both QROPS providers and financial advisers offering their schemes, making it a little overwhelming at first glance. However, although there are always new companies appearing, choosing a well established provider with plenty of experience is always a wise option, and usually due to their economies of scale, they are also often able to offer the lowest fees for clients. There are other considerations you will need to make, such as whether you think you will move countries in the future once you are in retirement; as this may affect the tax treatment of your QROPS. A simple way around this is to choose a QROPS provider that offers a range of QROPS in different countries, for example both Malta and Gibraltar, and also perhaps a UK SIPP which would cover you just incase you ever decided (or were forced) to return to the UK. Providers that have schemes in a number of jurisdictions usually offer their clients free switching between their schemes and this will protect you against any nasty future unforeseen expenses if you moved to a new country and as a result needed to switch the jurisdiction that your QROPS was held. Beware, as some low cost QROPS providers may not have low cost exit penalties if you get it wrong!
As well as future flexibility if you found your circumstances had changed you will also need to check that the scheme offers access to a wide choice of investments. It is important that you will at least be able to allocate your funds to an investment bond or dealing platform, as without this option you may find that your low cost QROPS limits you to just a small range of investment funds, which won’t give you much room for manoeuvre if performance does not live up to expectations.
So what constitutes as low cost in todays’ market? For transfers of below £100,000 then set up fees of no more than £300 would be considered low cost, and then you would expect to pay around £500 per annum running costs to the trustees; these schemes are often referred to as ‘Lite’ schemes. For pensions transfers of over £100,000, then low cost options would typically involve set up costs of £645 per annum and annual fees of £845 per annum. However one provider is currently offering their Gibraltar Lite QROPS on all transfers; clients are simply required to have a minimum of £25,000 in pension benefits to open the scheme and there is no maximum transfer value. Their fees, which are reported to be the lowest QROPS fees on the market, are just £295 to set up and £450 per annum.
The Portfolio Bond Provider – Wrapper – Dealing Platform
Once you have selected your QROPS provider (hopefully with the help of an experienced financial adviser), the next element of charges that need to be considered are those of the portfolio bond provider; which can also take the form of a wrapper or dealing platform.
The QROPS provider usually only provide the trust for your pension benefits and take care of things from an administrative point of view, the actual funds that you have transferred will need to be placed within a portfolio bond or held on a dealing platform. Whilst there are some trustees that offer a bespoke QROPS, which allows you to hold direct investments in various types of listed assets with them, the costs of these are typically vey high, and certainly not associated with lower cost QROPS, which will often stipulate that the funds are held within a single bond provider or dealing platform.
This is where the charges can really vary, and there are different options depending whether you want to use a commission model, a fee model or a combination of the two. A good financial adviser that is genuinely independent will always be happy to offer you a choice of models with regards to how your policy is set up. With a fee model you can expect to pay an initial fee of up to 3% and annual management fees would range usually from around 1% to 1. 5%; depending on the fund size. If you opt for a commission or combination model, then initial fees would normally be avoided completely, instead you would attract an exit penalty if it had to be cashed in early, in full, during the early years (of course the ability to ‘cash in’ the QROPS would also be dependent upon you reaching retirement age as well, and further restrictions may also apply then).
Fund Charges or Discretionary Fund Manager Fees
Any further costs will depend on the assets that you hold within the QROPS. For example if you are holding only direct equites, bonds, PIBS (permanent interest bearing shares) or structured products, then there will be no further charges that apply once the assets have been purchased. However, whilst some QROPS may be structured with these types of assets only, the majority of QROPS will also (if not exclusively) hold collective investment funds, which will have a fund mangers charge applied to them. Whilst this area is often overlooked, as it is not a charge that is often seen by the client, it is still worth checking with your financial adviser what these funds are. For example, the institutional share class may have an annual management fee that is 50% lower than the retail class, and where possible it is important to ensure your adviser is able to secure you the best discounts that are available.
Another option is to appoint a Discretionary Fund Manager (DFM) who will run the portfolio for you. When you appoint a DFM they are authorised to make decisions regarding buying and selling investments in your behalf, subject to any pre-agreed risk parameters you have decided on them. This is usually a bespoke strategy for each client (although risk defined managed portfolios are also available for smaller pots) and the cost of such service will typically range from 0.75% to 1.5% depending on the value of the funds they are empowered to manage.
Zero Cost QROPS Transfers – No Initial Set Up Fees
We firmly believe that one should not make a decision to transfer to QROPS; or rather not to transfer to a specific QROPS provider on cost alone, as there are many other factors that need to be considered in the suitability of any decision you make. However, we do appreciate that in a competitive market place the cost of transferring; particularly when many other features may at first glance appear equal; will often be a pivotal factor in selecting not only which QROPS provider to use but also which financial intermediary to use to advise on the transfer. As a result we are pleased to introduce our Zero Cost QROPS transfer promise.
Not only will we provide you with a free initial consultation with one of our experienced UK qualified independent financial advisers, which also includes a free follow up report explaining to you which QROPS jurisdiction is most suitable for you and which provider offers best value, but we will also discount you the full initial set up fee that you would otherwise pay to the trustee. This will ensure you have the confidence that you can transfer to QROPS without having to base you decision on cost alone. To take advantage of this special online offer, please ensure you quote ‘Zero Cost QROPS’ when submitting your enquiry.
If you would like more information regarding QROPS, or simply have some questions that you would like to ask, please contact us today and we will be happy to provide you with our assistance.