“Moving in and out of different asset classes, whether bonds, equities or switching between funds, changing currencies and investing in more exotic options within Rops, such as structured products and other instruments can often be expensive, and the excess returns do not necessarily outweigh the transaction costs,” Strabens Hall’s executive director, Adam Benskin, told International Adviser.
All these charges can easily outweigh the benefits of not being subject to UK tax, added Benskin.
“Individuals need to be aware that often the fees that they can be charged by advisers on Rops can often lead to higher costs for individuals on their pension funds than if they had left their fund in the UK.”
According to the advisory firm, it is often the case that these investments are held in an offshore bond wrapper that has been established on commission terms.
"Rops can often lead to higher costs for individuals on their pension funds than if they had left their fund in the UK."
In addition to the annual charge on the investments, annual fees for maintaining the offshore bond, there can be transaction costs, fund charges and dealing fees.
Benskin’s comments coincide with a consultation announced by the UK government on Monday looking at potentially scrapping the ‘advice safeguard’ for expats, which requires individuals to consult an FCA-regulated adviser before they can transfer their defined benefit (DB) pension savings into an overseas pension scheme.
UK pension freedoms
Strabens Hall added that given the UK’s pension freedoms, introduced in April 2015 giving people unrestricted access to the retirement savings, there was now less need to move a client’s pension savings into an overseas scheme.
“Qrops offer broadly the same investment flexibility as a UK self-invested personal pension (Sipp), and so increased investment flexibility is unlikely to be a sufficient reason for a Qrops transfer to be recommended,” Benskin said.
In August, IA reported that sales of recognised overseas pension schemes (Rops) are taking a hit post-pension freedom, made worse by an FCA rule requiring British expats to seek regulated advice for defined-benefit pension transfers.
However, Stewart Davies, group chief execuive of Momentum Pensions, an international Qrop provider which also has a UK-based Sipps business, disagrees that Rops no longer serve a purpose.
“Rops can form the cornerstone of retirement planning for many people. They can offer benefits for any nationality who have accumulated a UK pension fund and are now living or planning to live out their retirement abroad, and for people who have left the UK permanently, or who intend to do so,” he said.
Davies urges people “to ensure they are dealing with a Rops scheme that has a transparent pricing structure – there should be zero room for any confusion over pricing.”
Another Benskin flagged up is that many financial advisers outside the UK, especially in offshore centres with laxer regulation and opaque disclosure rules, still work on a commission basis, which means a Rops transfer is likely to be “very lucrative for the adviser”, rather than in best interests of their clients.
“In many cases, financial advisers have no obligation to divulge the fees or commissions received from the transactions. This can mean that transfers and investments are product sales, rather than the result of impartial advice,” he said.
The International IFA firm revealed that its Hong Kong office has advised a number client who have been mis-sold in this way.
Geraint Davies, managing director of Monfort International, agrees, adding that many overseas advice firms consist of ‘advisers’ with very little or no training.
“We know of firms who will let loose on the general public an ex-car salesman with three days training in how to bamboozle the innocent,” he said.