This is a question we’re hearing increasingly often. And, yes, is it possible to move your pension to an alternative QROPS (Qualifying Recognised Overseas Pension Scheme) or even a SIPP (Self-Invested Personal Pension). In fact, GBPensions have helped a number of clients to do this. However, as is customary in the world of finance, there are numerous pros and cons to weigh up.
What might be the reasons for transferring from one QROPS to another?
Everyone’s circumstances will be different, so factors will vary in relevance and personal priority. However, in no particular order, these are some of the points to consider:
Past performance of the underlying investments
Although this is no guarantee of future performance, it can have a significant influence on final returns. Investments invariably can fall as well as rise and the original sum invested may not be returned.
Fund choice and selection
Thorough research of the chosen investments is critical, as are regular reviews and appraisals to ensure they continue to meet current needs, and that the overall portfolio still satisfies the client’s attitude to risk. This should enable the client to “sleep easy” in the knowledge that they remain on track with personal goals.
Flexibility of investment options
A broad choice of investments in various currencies that can be switched between is important when maintaining a diversified portfolio. Diversification is an acknowledged method of mitigating risk.
Ongoing management costs
These can vary hugely between schemes and investments. The higher the fees, the stronger the underlying investments need to perform. This could result in the client holding higher yielding (and therefore probably, higher risk) investments than they might ordinarily be comfortable with, in order to offset the effect of these deductions.
Alternatively, lower fees might enable the client to hold lower risk investments, yet still receive the same net return. Just 0.5% pa could make a significant difference. After all, if you could save 0.5% every year on your mortgage, you’d probably seize that opportunity. Why not take the same attitude with your investment portfolio?
Tax efficiency
Different products can give different tax outcomes, depending on where the client is tax resident or in which country they intend to spend their retirement.
Ongoing service and maintenance support
This can be the straw that breaks the camel’s back, when clients have issues surrounding their scheme or investments. All the positive points of a scheme are quickly forgotten if communication and support from the adviser and /or product provider are poor.
Conversely, what might be the disadvantages of transferring from one QROPS to another (or to a SIPP)?
All the aforementioned considerations can work equally for or against an existing or new scheme. However, regardless of whether a new scheme seems preferential to an existing one, a number of other factors need to be taken into account and again not necessarily in the appropriate order of importance, some of these are listed below:
Exit charges
These might be applied by the scheme itself and /or by the underlying investments. These fees alone could potentially lessen or completely negate the viability of a transfer.
Tax liability
This could arise, depending on the transaction and the tax jurisdiction of the client at the time of the transfer.
A scheme’s rules and regulations
The existing scheme may have more favourable legislative terms than the proposed alternative.
Other costs
There may be fees from an adviser, portfolio manager or any of the parties associated with setting up the new arrangement or scheme.
If you’re wondering whether you should transfer out of your current QROPS, it’s important to be aware of all the various elements so that you can make a genuinely informed decision. For a friendly, no obligation chat about your options, please don’t hesitate to get in touch with the GBPensions team.
