Ever wondered why is my QROPS expensive?
Many ex-pats have been sold a QROPS on the basis of tax efficiency, ability to draw down your pension “tax-free” and removing your pension pot from UK regulation. Within this article, however, we are going to specifically look at the overall cost of different QROPS. We will compare different providers and structures as well as assess whether they are the right option for you and your circumstances. Demonstrating what does and does not make your QROPS expensive.
Topically, QROPs came into existence on 6th April 2006 when HMRC honored the EU human rights legislation on the ‘freedom of capital movement’.
Since the introduction of the QROPS ‘Overseas Transfer Charge’ (OTC) on the 9th March 2017, where certain transfers to and from a QROPS are liable to a 25% tax charge, we have seen a large rise in the number of clients looking to utilise an International SIPP. For a review of the International SIPP market and the associated benefits please see Here.
In the early days between 2006-2008 and up to 2010-2012, QROPs was very much a niche pension planning solution. And their costs reflected this. However, as awareness of QROPs and their advantages grew the marketplace rapidly evolved.
Increased competition sharply drove down QROP costs to the benefit of our clients:
- QROPS set-up fees (based on pot value of over £100,000) has plummeted from £2,500 (2006 – 2008) to as little as £645 (2018-2020).
- QROPS annual trustee fees have plummeted from £2,500 (2006 – 2008) to as little as £845 (2018-2020).
Fees vary from provider to provider and although an important aspect is not the only factor to consider when analysing cost. Other key areas include: Service, Regulation, Reputation and Company structure.
QROPS Comparison – Fees
|Momentum QROPS Plus||STM QROPS||Trireme Pensions QROPS||Sovereign Centaurus QROPS||Optimus QROPS||Azure|
|Setup fee||£645 / £895||NIL||£750||€1000||Refused to confirm pricing||£400 / £700|
|Annual fee||£895 / £945||£803||£950||€1400||Refused to confirm pricing||£400 / £700|
|Establishment of benefits fee||Time / Cost Basis||NIL||NIL||€0||Refused to confirm pricing||NIL|
|Income drawdown fee||Time / Cost Basis||NIL||£150||£0
(unless monthly then €100 PA)
|Refused to confirm pricing||NIL|
|Termination fee||£1500||£1000||£2000||€1000 – €3000
dependent on length held
|Refused to confirm pricing||£400 / £700|
Other key factors making QROPS Expensive
As mentioned above it is not just the cost of the QROPS providers which can make a QROPS expensive. The structure in which your QROPS has been setup plays a fundamental role in the overall cost. So level one is the pension provider i.e QROPS.
The “QROPS” itself – the trustee and administrator of the pension funds
Level 2: The Investment Structure
There are 2 options here. One is a clean, low cost, transparent investment platform set up on a fee-only basis and the other an investment bond which is expensive, opaque and pays out a commission.
Unfortunately, all too often investment bonds are utilised within a QROPS as a way of the adviser making commission from the bond provider and funds within the portfolio. Usually sold as a “tax advantage” which is negated by the fact the QROPS itself is a tax wrapper. As with any commission-based investment structure any monies paid out must be made back and as such this equates to high “running costs” and even higher “surrender charges”.
An investment platform (still not often used in the offshore space) is a far superior product. For an in-depth look at investment platforms and how they work please see an article I have written here.
Level 3: The Funds
As touched upon above, the funds can pay out a commission to the adviser much like the investment bond. Usually around 4% of the total investment and built into the annual management charge. This is often combined with “trail paying funds” where the fund will pay the adviser an ongoing charge of 0.75%, again built into its AMC (Annual Management Charge). All of this results in incredibly high ongoing costs and unfortunately all too often, a flat performance in the portfolio, when in fact the markets have been steadily increasing.
Below are two case studies, one with a low-cost QROPS setup on a fee-only basis with clean infrastructure and the other within an expensive QROPS setup on a commission basis.
Case Study – QROPS Expensive
If we take the case of an Expat based in France with a £300,000 (GBP) pension. For simplicity, we have ignored any upfront costs/commissions paid and will compare ongoing costs.
Annual Fee (Average): £950
TOTAL COST: £950 per annum
Investment Bond Cost:
Average ongoing bond cost setup on a commission basis is 1.5% per annum
1.5% of £300,000 = £4500
Additional quarterly administration charges – £98
Annual admin charges = £392
TOTAL COST: £4892 per annum
Average trail paying fund with a globally diversified portfolio = 1.75% AMC (annual management charge)
1.75% of £300,000 = £5250 per annum
TOTAL COST: £5250 per annum
Compared to an Investment Platform setup on a fee basis
Investment Platform Cost:
Setup on a fee-only basis is 0.3% per annum
0.3% of £300,000 = £900 (saving of £3600)
Additional quarterly administration charges – £0
Annual admin charges = £0
TOTAL COST: £900 per annum (saving of £3992)
Average clean fund with a globally diversified portfolio = 0.40% AMC
0.40% of £300,000 = £1200 per annum
TOTAL COST : £1200 per annum (Saving £4050)
Net 10-year total reduction in Costs
- QROPS = £0
- Investment Platform = £39,920
- Portfolio (Clean) = £40,500
Net 10-year saving = £80,420
Regulation of Existing Advisers
As of 1st January 2019 The Pension Rules for Personal Retirement Schemes came into effect. The stated that any member who has transferred their UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS) in Malta has to ensure their financial adviser is regulated within the jurisdiction. As a result, a number of existing QROPS holders have been left without advice or worse still been passed over to a “recommended investment manager” who has slapped on an automatic ongoing fee i.e 0.5% – 1% per annum.
What action can you take regarding it?
The first step is to speak to an impartial, fee-based Independent Financial Adviser who can review your existing structure.
Book a free QROPS review and we will analyze and answer each of the following:
- Why is my QROP expensive?
- Is my existing QROP on the latest charging structure?
- Why has the performance on my QROPS been so poor?
- Is my QROP located in the best jurisdiction for my retirement?
- Am I now more suited to a UK SIPP if my situation has changed or returned to the UK?
- What advantages is my QROP offering me over a UK SIPP?
Please include a summary of your QROP situation and we will be in touch within 24 hrs to organize an appointment by telephone or Skype.
We look forward to helping you reduce your QROP costs and improve your retirement returns.
The information contained herein is for informational purposes only which is subject to change and should not be relied upon. You should seek advice from a professional adviser before embarking on any financial planning activity.