By Sam Kelly,
International SIPP or QROPs for pension transfers?
Firstly, to explain what these both are for those unfamiliar with the terminology. An International SIPP is a UK based, FCA regulated personal pension (Self Invested Personal Pension). A QROPs is an overseas pension (Qualifying Recognised Overseas Pension Scheme). Both can be held by Brits living in Spain.
I think the first question to answer is why would you transfer to a SIPP or QROPs in the first place? Well, we are seeing increasing restrictions on those holding UK personal or company pensions in terms of their options at retirement. Coupled with these issues is the simple fact that you will benefit from having qualified, expert advice from a local adviser here in Spain. High quality ongoing advice can not only help in terms of achieving superior growth on such plans, but it can also be vital in terms of your tax planning as Spanish residents.
So, what are the main differences between SIPPs and QROPs? Well, significantly, for most people there aren’t any real differences. On both you can hold a good portfolio of fully regulated funds from highly respected fund houses, you can have flexible access from age 55 and you can pass on your pension to a beneficiary of your choice. A Chorus adviser can fully manage both types of plan for you (although we are aware of a lot of advisers in Spain who do not have the full investment licence, so you will have to pay additional fees for portfolio management).
In terms of costs, our experience is that SIPPs are substantially cheaper. The International SIPPs Chorus now offer cost as little as £45+VAT per quarter, with a low-cost investment platform available to hold your underlying funds. In terms of QROPs, we see annual charges as much as £1000 with clients often tied into overpriced insurance bonds on top.
What surprises me most is how many times I see clients being recommended a QROPs in Spain, despite the substantial price difference, when an International SIPP will do the same job for a fraction of the cost. The answer to that is typically complex and may be that that firm do not have the licence to offer a UK SIPP, they may have a ‘relationship’ with the QROPs provider or they may receive high commissions from a QROPs that would not be permitted in an International SIPP.
There are some distinct circumstances where a QROPs may offer unique advantages. One example of this is where you are close to your UK pension lifetime allowance, which is currently £1,073,100. This would mean that the total value of all your pensions is near to this figure and by moving to a QROPs you would avoid any potential Lifetime Allowance Charge should your pension fund grow beyond this number in the future.
Secondly, QROPs can avoid the UK pension ‘Death Tax’, which is a tax your beneficiaries may pay if they inherit your pension should you pass away over the age of 75. One thing we know for sure with pension legislation is how often it changes! Unless you are very close to 75, we would rather put you in a much better value plan until you near 75, than have you paying higher fees for many years in the hope of saving a tax that may not even exist by the time it becomes an issue. We could always move you to a QROPs nearer the time if that advice is beneficial.
As I emphasise week after week, always ensure that the financial advice you are receiving on any investment or pension transfer is the best possible option for YOU, rather than the most profitable for your financial adviser!