In this article, we’ll take a look at the different costs involved in transferring a UK pension and transferring it into a QROPS scheme, and specifically at the number of low cost QROPS schemes which have recently come onto the market.
Different QROPS Costs
There are two main elements to QROPS costs. The first is the costs of the QROPS provider, who will actually be involved with setting up the QROPS scheme, and enrolling you as a member of that scheme. The second element involves the costs and expenses of the investments into which your pension fund will be invested.
QROPS Provider Costs
At the QROPS provider level, there will be a set up cost, and an ongoing annual administration charge.
There is actually a lot of work which needs to be carried out by the QROPS pension administrator when undertaking the transfer process. They must process the paperwork to admit the pension holder as a new member, to liaise with the existing UK pension administrators, submit the UK pension transfer papers, and manage the flow of the pension funds from the UK scheme into the QROPS scheme. And once the funds have been received, they must allocate these funds to the investment scheme selected by the member and his or her adviser.
And because you are dealing with funds which have received UK tax relief, the HMRC has laid down strict guidelines for QROPS transfers, and these must be met to the letter. And if the provider gets it wrong, then their status as an approved QROPS scheme may be threatened. So everything must be done right, which inevitably involves a lot of paperwork.
The costs of setting up the QROPS typically range between £300 for ‘low cost’ transfers to around £1,000 for larger fund sizes.
Then, once the member has been enrolled in the scheme, and the funds transferred, the provider will charge an ongoing fee for maintaining the scheme, an ensuring that all reporting requirements are satisfied with the various authorities. The ongoing fees are similar to the set up fees, and vary between £300 and £1,000 per annum.
Costs and Expenses of the Investment Wrapper /Bond/Platform
Once the funds from your UK pension have been transferred across from your UK pensions into the QROPS scheme, they will need to be invested. There are a variety of options available for a QROPS member, which is one of the reasons that can make a transfer so attractive. Funds can be placed into an offshore bond, on an investment platform, and in some circumstances, they can be invested directly with a discretionary fund manager.
Charges for an investment platform will involve an initial charge for all funds which come onto the platform, which will vary from 0.5% to 2% of the initial pension fund, and an annual management fee of between 1% and 1.5% per annum. Charges for an offshore bond are similar, although depending on the bond provider, there may not be an initial charge imposed. Both options have different features and benefits, and your financial adviser can recommend which option is more suitable given your personal circumstances.
In addition, in respect of each of the individual investments within your pension portfolio, the investment managers will charge an annual management fee. These fees will vary, but are generally between 0.5% and 1.5% per year.
In certain cases, pension funds can be invested directly with a discretionary fund manager. In this case, a portfolio bond or investment platform may not be required, and the overall costs will be reduced . However, the downside of this approach is that you may be severely restricted by the choice of funds on offer, and the overall pension fund performance may suffer as a result.
Low Cost QROPS
Over the past years, ‘low cost QROPS’ and ‘QROPS lite’ have been the buzzwords in the offshore pensions industry as more providers have introduced QROPS schemes specifically aimed at smaller pension pots. Whereas just 2 or 3 years ago it was not economically feasible to transfer a UK pension into a QROPS unless your fund value was at least £75,000 or even £100,000, it is now possible to benefit from a QROPS with as little as £25,000.
Restrictions on Low Costs QROPS Schemes
Care needs to be taken to ensure that you are still getting a first rate product for your UK pension, and that your funds will be carefully invested. In some cases, the providers can only offer these low cost QROPS schemes because they have teamed up with a particular fund manager, who may only have a narrow selection of funds on offer.
However, most low cost schemes currently on the market offer the same features and benefits as other QROPS schemes, thus opening up the availability of QROPS to people with smaller pension pots.
Zero Cost QROPS Transfers
QROPS Adviser.net offer a unique scheme whereby all QROPS transfers carried out by them on behalf of their clients are done free of charge – ie with ZERO upfront charges from the QROPS provider. Because of their size and reputation in the market, they have been able to negotiate great terms for their clients. And in case they can’t negotiate a complete waiver of the set up fees, they will rebate to you any costs they can’t waiver.
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