Qualifying Recognised Overseas Pension Scheme Transfers
Many people now living in Spain have been advised to move their pension out of the UK but – was this a good idea?
Known as a QROPS (Qualifying Recognised Overseas Pension Scheme) transfer, pensions have been moved out of the UK and to Gibraltar, Malta and even New Zealand. In comparison to these locations, you have to remember that the UK pension market is one of the most competitive and regulated jurisdictions in the world.
There is little issue in paying UK pensions to ex-pats living in Spain. Even currency risk can reduce through what funds the pension is invested in or by locking in your rate on future currency transfers.
Moving former workplace pensions can also mean the loss of valuable guarantees. These defined benefit, final salary schemes give, for example, a guaranteed income. We have seen cases where pension holders immediately lost over 30% -it’s a bit like the instant drop in value on a new car as soon as you take it out of the garage.
If you did take advice and moved your pension, was your advisor UK-qualified and did they fully understand the situation in Spain? Moving a pension from one country to another is a complex issue, with lots of aspects that need to be considered. One of the most important is tax advice, whereby an adviser should consider not just your present tax position but also your long-term income and thus your future tax position.
All too often we have seen financial adviser reports to clients (often called a “Suitability Report”) which do not cover these types of complexities, or simply mentions them but fails to address the reality of the complexity.
Huge Fee's And Bad Advice
Fees are a huge issue, not just the fees chargeable by the adviser, but also the fees charged by the new pensions and investment. Obviously, advisors are in business and therefore need to make money. However, many use contingent charges, namely only charging a fee if someone agrees to move their pension.
In the UK, this charging structure has become very controversial around pensions as there should be a lot of work to get to the point of giving proper advice, but the adviser only gets paid if someone physically moves their pension.
When you step back, there is an obvious flaw in this charging system. We also see high ongoing annual costs being charged by advisers, which of course comes from people’s pension pots. The reality too is that any ongoing advice fees should only be charged if an adviser does provide an annual review of a person’s pension and circumstances. All too often, we have seen advisers continuing to charge, but ignoring the obligation to provide these reviews.
A further problem which we have witnessed is what people have been advised to invest in. All too often, this has been Unregulated Collective Investment Schemes (UCIS), earning agents commissions of up to 55% and typically, but not exclusively, covering the likes of hotel rooms in the Caribbean or Cape Verde, overseas farmland, storage pods, airport parking spaces, green energy schemes and loan notes. Many have sadly lost some or all of their pension fund, but are still locked into paying annual SIPP fees.
Even what appears to be perfectly normal funds can sometimes have huge exit fees of, for example, 80% for 10 years. Big advisor fees have to be paid for somehow, but it does mean that someone looking to take their money or move their money to anything else, sacrificing a whopping 80% of their fund.
Finally, we know that many people who induced to move their pension through being promised payment from the adviser. Ranging from a few hundred pounds, to many thousands of pounds, this would have been entirely legitimate if this cash lump could have been taken as a benefit from the pension (typically if a person was aged over 55). Unfortunately, in many cases, these cash payments or inducements are not within the permitted rules. Many unregulated investments can see master agents walk away with a commission of up to 55% or more with your “cash back” being paid from that source.
Understandably, victims might be nervous about coming forward but remember it is the adviser who can be seen to be at fault. They were the expert and not you.
If you are concerned that you may have been a victim of poor pension advice, please complete our enquiry form and we will be in touch. If you prefer, you can speak to our expert team immediately on 00 44 1382 200474. We can even do personal visits to your home in the Costa del Sol.