Is A QROPS Right For Me?
LEARNING OBJECTIVES
We provide high quality, relevant and up-to-date retirement advice to British Expats around the world.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How a QROPS works
The drawbacks of a QROPS account
How a QROPS compared to an International SIPP
Key considerations before transferring any UK pension
If you’re planning to retire abroad, it's important to consider what will happen to your pension. Many Brits choose to transfer their pension pot out of the UK and into a QROPS, but this may not always be the best choice, depending on your circumstances and financial goals.
Whilst a QROPS pension transfer can offer some benefits to UK expats living overseas, they do carry some risks and disadvantages. Before you decide to move your pension, it’s important to be aware of these risks, as well as the other options available to you as a British expat.
What Is A QROPS?
A qualifying recognised overseas pension scheme (QROPS) is a pension scheme which is based outside of the UK, with similar properties and conditions to a UK pension. This scheme will then be recognised and approved by HMRC. These schemes are designed to allow UK expats to transfer their pension overseas when they move, avoiding certain tax liabilities such as UK inheritance tax.
Unlike with an International SIPP, transferring to a QROPS will essentially mean that you are taking your money out of the UK (schemes are typically based in Malta), whereas if you choose to invest into a SIPP, your pension remains in the UK and under UK regulation.
Disadvantages of a QROPS
Below are some of the key issues that are often associated with Qualifying Recognised Overseas Pension Schemes:
01 QROPS Can Be Expensive
A QROPS is not cheap- they typically cost three to five times as much to run as a UK pension or an International SIPP. This is due to the many fees incurred with a QROPS, including payment fees, trustee fees and annual management fees.
These fees will ultimately eat away at your pension pot and can affect the long-term growth of your wealth.
02 Lack of Regulation and Protection
When you transfer your money outside of the UK into a QROPS, you will in turn sacrifice the regulation and financial protection you would otherwise receive from a UK Pension or International SIPP. This means if anything goes wrong, you’ll have less course for redress, potentially putting your money at risk.
03 Commission Payments and Miss-Selling
As most QROPS are not regulated by UK authorities, offshore advisers can often charge unreasonably high commission rates, it's not uncommon to pay 5-10% of your pension value in commission. With an International SIPP you are protected by working with UK regulated advisers.
04 Unregulated Investments
Whilst a QROPS account grants you access to a range of varied and niche investment opportunities, these may include unregulated funds. You may want to consider if you are willing to open your pension pot up to greater potential market risk.
International SIPP vs QROPS
If you are moving abroad, there are potentially safer and cheaper options available than the QROPS. Investing in an International SIPP (Self-Invested Personal Pension), for example, offers the flexibility to choose your investments and potential to grow your wealth, whilst offering much more financial protection.
If you choose to invest in a SIPP, your money will be protected by the FCA, FSCS and the Pensions Regulator. This option will also cost you much less in fees and commissions, with SIPPs on average costing 3-5x times less than a QROPS account.
Financial Advice for UK Expats
The Wealth Genesis helps expats around the world with financial advice and retirement planning. Our advisers are specialists when it comes to pension transfers and advice on UK pensions, QROPS and SIPPs.
