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Checklist of The QROPS Pitfalls to Avoid


"The act of selling a product in return for money"


"Guidance or recommendations concerning prudent future action, typically given by somebody regards as knowledgeable, and based upon a full understanding of an overall situation"

Unfortunately, since the inception of QROPS in 2006; much of the so called "advice" has been more akin to sales. For many overseas retirees their pension is one of their biggest assets, and is essential to their overall retirement. Some of the sales processes we have seen take the importance of this extremely lightly, with commission and sales targets being the sole driver behind the sale.

Before taking advice in this area we would suggest you strongly consider the following:

What is the background of the adviser?

It is not uncommon in the Offshore adviser space, that an adviser (hereafter known as salesperson) had until recently been selling TV's, cars, fridges or some other non-financial product.

Due to the complexity of UK pension rules, many experienced UK financial advisers outsource pension work for UK residents to those who solely specialise in pensions. With non UK residents, even the most experienced pension advisers generally outsource for fear of getting the advice wrong for their client.

In addition to the guarantees that may exist on UK pensions, the cost of setting up the wrong QROPS (especially post 5th April 2012); could result in additional income tax, lump sum tax charges; and a substantial reduction in retirement income. It is commonly said that a little knowledge is dangerous, and this is especially the case in what is a highly technical area.

Are you receiving "free advice"?

At least a few times every week we speak to a client who is receiving "free advice". This advice is normally "free" because there are no upfront charges and no commission received by the salesperson is disclosed. Once we have had a look at the proposed advice the total advice fee is normally in the region of 10-11%.

There are 2 ways in which this 10-11% is made up. Firstly an Offshore Portfolio Bond is set up typically where the only charge is "1.5% for 5 years" or "1% for 8 years" as well as a quarterly charge in the region of £50 to £100 and a 0.5% per annum bond charge. THE TYPICAL UNDISCLOSED COMMISSION IS 7-8%. There are in some circumstances very good reasons for using an Offshore Portfolio Bond, but the fee levels before commission is applied are normally in the region of 0.25% per annum.

The 2nd and more dangerous way that commissions are received is through funds that are sold as having "no charge, straight line performance and guaranteed returns". In these portfolios there will be a lack of household investment managers which you expect to see in your UK pension such as Fidelity, Invesco Perpetual and Jupiter. Many of these funds typically pay 3-4% additional commission, with an end date that can be reinvested for more commission. The danger is that many of these funds are based upon a "story" rather than fundamental economics, are not regulated and may run into problems where the guaranteed income cannot be paid out, and hence no retirement income is available. The FCA are constantly reviewing some of these types of investments, as they are generally deemed to be higher risk than most clients risk profile; even though they are not sold in this way.

Please see: www.fsa.gov.uk/library/communication/pr/2012/083.shtml

How is the advice protected?

QROPS are not CURRENTLY regulated by the FCA. This means that anybody can advise on a QROPS transfer. If you however receive advice from an FCA regulated adviser you have a right of redress against the advice provided. This is because many UK pensions are regulated by the FCA.

Each adviser who is regulated by the FCA has to abide by the principle of "treating customers fairly". This covers all dealings we have with you, and our agreement covers your right of redress. We are liable for the advice we provide, and hence the most suitable product has to be recommended. If keeping your pension where it is, in many cases it is a suitable solution; we cannot advise you to transfer.

Some companies will provide QROPS advice that is from an FCA regulated company, but the investment advice from a seperate non FCA regulated company. This enables them to "compete with Offshore advisers" in terms of not disclosing additional fees or commissions.

Please see the following FCA website: www.fsa.gov.uk/consumerinformation/scamsandswindles

Are you in a Final Salary / Defined Benefit Pension?

A UK regulated adviser, cannot advise on a transfer from a final salary / defined benefit pension, unless a number of examinations are passed. Amazingly, because QROPS are not regulated; a non UK regulated adviser can.

A final salary / defined benefit pension scheme will, in the vast majority of cases provide a greater level of income than other pension arrangements. You should not transfer unless you have had a full transfer analysis report explained clearly, and you are happy to accept all the risks. Rewinding to the background of your adviser, you should be extremely wary here; as an even greater level of knowledge is required to explain the nature of final salary / defined benefit pension.

Has the same QROPS transfer solution been provided to you and all of your friends?

One of the biggest problems with QROPS, are that clients with different circumstances and objectives have been sold the same solution; irrespective of their personal needs.

This is because some sales forces of non UK regulated advisers have been given a QROPS product and underlying investment product to sell.

From our experience we have seen clients transferred to products that are not compatible with where they are living creating unnecessary tax; losing important guarantees; put into funds that have gone bankrupt, and sold products that have no benefits. All with no financial come back to the sales person.

For more information on QROPS please contact Cradle using the form below.

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Cradle Overseas Pensions Ltd is authorised and regulated by the Financial Conduct Authority. FCA number 626364. Registered office: 2 Petty Lane, Derry Hill, Calne, Wiltshire, SN11 9QY. Registered in England and Wales, Company number: 7273148.

The guidance provided within this website is subject to the UK regulatory regime.

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