Expats can make the most of their retirement savings by moving any small funds into a larger tax-efficient QROPS.
Making the move is sound financial planning for many expats.
The gains cover the benefits of investing in a QROPS as well as saving management and fund charges by pooling the small schemes.
Around 120,000 British expats and international workers with UK pension rights have moved approaching £10 billion offshore, transferring retirement savings out of a UK pension into a QROPS could be advantageous for many more.
Expats who believe switching to a QROPS would be too expensive because their funds add up to less than £100,000, should think again.
Many QROPS providers now offer low cost QROPS-lite options for these smaller funds.
Why expats should consolidate their pensions
Expats have five good reasons why they should consider consolidating small UK pension funds into a QROPS:
- Older pension products are likely to be expensive and offer funds with poor investment growth compared with those offered by current QROPS
- Moving to a QROPS puts retirement savings out of reach of the Chancellor of the Exchequer who may plan law changes or tax hikes
- Charges and fund performance are likely to be much improved – for example a £10,000 fund may report a return of 5% a year, but if the annual charges add up to 2%, then the yield is only 3%. The same fund with a return of 4.5% a year but with charges of 1% gives a 3.5% a year return – which is 16% more annually
- A QROPS transfer avoids lifetime allowance penalties if you have a fund approaching £1 million or more. Once switched offshore, the fund can grow to any size without HM revenue & Customs applying penalties
- Some QROPS come with larger tax-free lump sums and all the pension drawdown freedoms offered by UK schemes
Failure to understand the benefits
Research shows retirement savers wrongly believe consolidating pension funds is not cost effective.
As far back as 2016, financial giant Aegon found around 15% of retirement savers misinterpreted consolidation was too expensive, 60% did not understand pooling funds would give them more money and two-thirds had never bothered finding out if consolidating pensions would benefit them.
“The issue seems to be a lack of understanding among consumers about how pension consolidation works and how putting accounts into one can save money,” said the report.