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QROPS How Do I Know If This Is Right For Me?
April 3rd, 2011
If you have a UK frozen pension and you are now living overseas, you need to take a look at QROPS. To give it its full title a Qualifying recognised overseas pension scheme QROPS transfers have been around since 2006. They were forced on the UK government by one an EU directive.
They are great if you are about to retire to the USA, Spain, France, or wherever. Or you already live outside the UK. A QROPS is like a UK pension on steroids. Anything good that a UK pension scheme can do once you leave the UK, a QROPS can do better. In fact you would be mad not to have a QROPS given the extra benefits they give you. Including:
A bigger pension Fund.
No UK tax to pay.
A bigger pension in retirement.
A larger tax free lump sum.
No currency risk. Hold your pension in the currency you will spend it in.
No UK death duties to pay.
However there is one drawback at this time, and that is the cost. If you have been approached by an IFA in Spain for example, they are looking at solutions with an upfront cost of up to 10% of your fund value. This has left people wondering if a QROPS is in fact worth doing.
The answer is undoubtedly yes a QROPS transfer is worth doing but must be undertaken at a realistic price that will allow your investment to grow at a rate higher than if you had left it in the UK.
This poses another question. How do I know if my QROPS will grow at a rate higher than if I had left my pension in the UK? This is where a thing called a TVA (Transfer Value Analysis) comes in. Any reputable IFA will undertake a TVA as part of the transfer process. This is a projection of what the QROPS could produce as a fund value at your retirement date. It clearly shows in financial terms how the proposed QROPS transfer compares to your existing UK pension scheme. Importantly it uses information supplied by your existing UK pension scheme including its costing structure. This is then directly compared to the proposed QROPS costing structure.
If the IFA you are dealing with will not provide you with a TVA. Do not undertake your QROPS through them. As you have no idea as to the effect of the QROPS charging structure. Also take note that neither do they. Find an IFA who is happy to undertake the TVA for you, as only a fully G60 or equivalent qualified IFA is able to produce a TVA. To be honest only a fully qualified IFA will know what a TVA is. Once undertaken, both you and your IFA will have a clear picture of your proposed QROPS transfer in financial terms.
What the TVA should show you is that at the same growth rate as your UK pension the QROPS will produce a higher fund value. The most important factor in this is the fee structure of the proposed QROPS. If it is too high the fees will eat into the fund value. In the extreme the fund value will be less than if you left your UK pension where it was. On the other hand if the QROPS recommendation is right for you. The TVA will show that the proposed QROPS transfer will produce a significant increase in benefit compared to your UK pension scheme.
So you need to undertake your QROPS at a low cost. Yes but do not judge a QROPS solution by cost alone. The lowest costing QROPS out there is £350pa.
But what this gets you is a very mediocre investment choice. If you chose this option it is highly likely that your QROPS will struggle to produce a return equal to that of the UK pension scheme you left. What is required is a reasonably priced Open Architecture QROPS solution.
So how do you get one of these? Answer choose an IFA who has access to Open Architecture QROPS solutions but at a reasonable cost. There are IFAs who can arrange access to Open Architecture QROPS solutions at discount rates. One is even offering a cash rebate of the QROPS provider’s initial charge. Importantly the same company is also the only one we know who is advertising that they undertake a TVA for every transfer they undertake. This means if you have six pensions they do six TVAs.
QROPS is something you need to look at if you are leaving the UK. Or you are already living outside the UK. QROPS was specifically constructed for you to hold your pension in. It has many benefits. Contact an IFA who can offer you a TVA. You will then have it in black and white whether a QROPS transfer if right for you. But remember never undertake a QROPS transfer without a TVA.
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