Somewhere along the line a QROPS transfer analysis will help in making a decision about transferring a UK pension pot in to an offshore Qualifying Recognised Overseas Pension Scheme (QROPS), you need to benchmark current and potential future fund performance with costs and charges to make a comparisons.
Failing to do so could mean losing irreplaceable benefits in a UK pension or missing out on tax and investment advantages in a QROPS.
The process for making this comparison is a transfer value analysis system report.
Basically, the report is a cost/benefit analysis of payments due under the current pension and proposed new pension.
The report includes commissions and fees charged by advisers and providers.
Even more importantly, the report has a critical yield figure for both schemes – which is the rate of annual growth needed net of charges by the new pension to meet the level of benefits paid by the current pension.
Making the comparison
This is where someone considering a QROPS transfer needs to take special care.
Unlike comparing onshore pensions like-for-like, the transfer value report cannot do the same for a UK pension and a QROPS because they are different financial wrappers.
While the pension is a clearly defined product in the UK, a QROPS is a trust inside a wrap of rules that govern the management of the scheme.
The report includes comments about tax free cash lump sums, death benefits and income from a pension but fails to discuss vital QROPS information, like:
- The financial jurisdiction where the QROPS is based – and as the rules vary slightly between jurisdictions, how location affects fund growth is not addressed
- When a lump sum becomes available and pension income
- Tax issues concerning death benefits
- Investment flexibility and the lack of caps on fund size or contribution levels
Make sure these details are covered – or that the IFA provides some sort of illustration with assumptions covering these points.
Regulated QROPS advice
Most QROPS providers will want to see a prospective client’s transfer value report as they will want to confirm a professional IFA has discussed investment risk and the benefits of switching a UK pension to a QROPS.
Don’t forget providers cannot advise on the benefits of their own schemes and cannot give details of other QROPS schemes.
For QROPS clients, the transfer value report is also a good indicator of how an adviser is regulated.
Regulated IFAs must help clients with a transfer value report as part of their compliance rules laid down by their regulating authority – but unregulated advisers do not have to seek the report.
QROPS Advice
If you are interested in transfering your UK pension to a QROPS and would like to be put in touch with a qualified financial adviser, please contact us via the contact form here for a referral.
