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QROPS - is this the time to act


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I've been talking to a Financial advisor about pensions over the last few weeks, and as the events of last Thursday have taken center stage I'm asking for advice/opinion on moving an English private pension into a QROPS scheme somewhere in EuroLand. I have an current transfer valuation from one pension company that is binding for 3 months (which was given before the UK voted Leave). I have no idea if the state of the economy in the UK will hit the value of pensions and whether moving the money out is a good idea, or that rules will change.

 

Has anyone does this and are their pitfalls I should consider ?  Non of us have a crystal ball so we have no idea of what will happen to UK private pensions to ex-pats if the UK does actually leave the EU. My gut feeling is that Pensions are an easy target to raise money if the economy gets a rogering.

 

It will be another 15or so years to retirement age (with today's current rules !) so it's not something that is imminent.

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There are a number of things to consider.

1. Unless your pension pot is in excess of 100K, it will not be worth doing. The charges for managing your pension pot will exceed any gains in most years, so the absolute value will go down irrespective of how the market performs. Personally I would think twice with less than 1/4million - but then I am Mr Cautious.

2, Essentially YOU become responsible for the investment decisions and it will no longer be the "experts" in your pension scheme. You will get copious advice from the new "experts" who will help manage your pension pot, but in end all decisions are yours. Some people may find this responsibility a little daunting.

3. When I transferred, you had the option of taking a lump sum on transfer. This was however a one off offer. I am not sure whether those rules have changed with the chancellor's changes in pension management in the UK.

4. You will not be tied to an annuity (if indeed you still are in the UK) and can invest your money pretty much as you want. Wise (or at least cautious) virgins will however take note of their "experts" advice.

5. You can tailor your income better to your needs in QROPS than with an annuity.

6. You will however lose the "guarantees" that an annuity provides and poor investment decisions or market collapse could mean that your pot runs dry before you do. It could also mean that your pension provider in the UK goes down the tubes as well of course.

7. Whatever remains in the pot on your demise can be passed on to relatives, cat homes or wherever you will. With an annuity the remnants are (I think) lost to the company.

Would I do it again?

Yes, my pension pot was underperforming. The QROPS investments have not all been sparkling but have performed better. I will never be a millionaire having made the jump, but I am enjoying a better lifestyle than I would have done.
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It depends on what type of pension you are transferring from, HSD.  If it's a final salary scheme, think long and hard about the guarantees you are giving up and what you will get in exchange if you transfer elsewhere.  As a rule of thumb, take a look at current annuity rates and see how much capital it would cost you to purchase the income that a final salary scheme provides.  If it is significantly more than the transfer value you are being offered, then think long and hard about it. 

Otherwise, there are 2 different sides to pensions - one is the structure of the pension itself and the other is the investments within it. 

The investments that can be used within a UK scheme are very wide ranging these days with only a few notable exceptions, primarily individual shares and residential property.  The pension owner can manage their own investments in a self invested type of arrangement or have someone else manage the money for them.  If the investments are managed on your behalf, there will often be an up front fee for investing/making recommendations and then an ongoing management fee.  Watch out for any up front costs as they can put a hefty dent in your money which it then has to recover from.  You get just the same mix of good, bad and indifferent performance from UK investments as from mainland European ones - it depends which you choose and how closely you monitor them until you need them.

Re. the structure of the scheme, if this is what you are concerned about, you need to have a clear understanding of what you want to achieve by transferring - is it access at an earlier age than your current scheme will allow?  Is it greater investment freedom? Etc.  It may have changed in recent years but QROPS usually only allowed transfers to schemes that offered broadly similar benefits to UK schemes in terms of the amount of tax free cash and level of income in retirement.  Many of the more far-flung schemes were closed down to prevent abusive transfers and, in any event, these were often very expensive for the customer and dealt with larger fund values, as Andy says.

Also, don't forget that whilst you may transfer to escape one pension regime, there is no guarantee that the one you move to will stay the same and no adviser can or should give you guarantees that it will.  The clearer that you can be about what your objectives are for this pot of money, the clearer the solution will be.

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  • 3 months later...

I thought I would report back with an update.

 

All the reports were done. As one of the pensions was a final salary scheme it had to be reviewed by independent "experts". Anyway, the upshot of it was that it was borderline if I moved (that one on it's own, but with the other defined benefits on...maybe). Apparently, the new QROPS would have to perform at 8% if I had to buy an annuity to replace it. (Is anyone buying annuities now?)

 

However.. due to the Brexit vote I asked for another transfer valuation as the other one had run its 3 months guarantee and was given before the vote. They are not obliged to give another one within 12 months so I had to write to the trustees. They agreed and I was quite surprised as the value has increased by almost 30% ! ... and that is quite a substantial amount.... in 3 months. I think they want to get rid of me :(

 

I am beginning to think that the UK is going to become a financial basket case in the coming years and I would not be any worse off my moving the pensions out.

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I rather suspect that the increased value has directly more to do with interest rates. Since lower interest rates mean a higher capital sum to buy the same income. I am assuming the scheme is a defined benefit scheme.

If so then the income is more important than the capital value, so the issue is future exchange rates. From my memory before the Euro and UK in EU the french franc moved between being 9 upto 12 to the pound. Pretty much inline with the current variations to the euro allowing for the German effect.

JFB

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[quote user="tinabee"]Or it may be the Eurozone that becomes the basket-case - according to one of the original architects of the Euro

http://uk.businessinsider.com/otmar-issing-analysis-on-future-of-euro-ecb-house-of-cards-will-collapse-2016-10[/quote]

From the man who "disapproves of the establishment of a European banking regulatory authority at the ECB.". As Farage, Gove and Johnson said you can't trust "experts" they always get it wrong. You probably have more chance of seeing Sterling fail than the Euro.
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  • 3 months later...

A quick question to those that have moved to a QROPS

How much say did you have in choosing a portfolio of investments ? Did you just go with the flow with what the "experts" said (they always seem to have fingers-in-pies) , or was there scope to come up with your own plan.  I've had a couple of portfolios placed in front of me, recently created ones. They have a mixture of investments from all over and were performing at 10-12% last year, although the previous couple of years were averaging 1-2%. I know they can go down equally well in this volatile market but is there somewhere you can go to get a more even balanced view of what is on offer.

 

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A QROPS is really just a type of SIPP and as such you should have complete freedom in choosing the investments.

I've had mine for coming up to 8 years and have been been reasonably happy with it the only wrinkle, if you want to call it that, is that it's established in the IoM where the flexible drawdown afforded by the change in the rules does not apply, a situation which it seems is unlikely to change in the foreseeable future.

Mindful I would guess of the handicap that places the trustees under in drumming up new business I'm told that they are in the final stages of transferring to Malta where FD will apply and whilst I have no plans to take advantage of it I will however take some comfort in the knowledge that in case of an unexpected major change in circumstances dictating it I could.

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Out of curiosity I did a quick search and was rather surprised to see that the IoM is still #1 in the QROPS providers league, clearly my guess that the lack of FD would be affecting new business couldn't be more wrong !

http://www.iexpats.com/qrops-list-june-15-2016

Oh and BTW the 'Q' (for qualifying) has been dropped so technically they are now just ROPS [;-)]

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