Unfortunately, a lot of expats have been targeted for being missold a bad pension, this is due for a number of reasons. Such as, being that a number of advisors are not adequately qualified or that they are not independent. What do I mean by bad pensions? Well, high fees, big commissions and under performing investments, the ones that make them wealthy and not you, the actual investor. In this article, I wanted to go over, have you been missold a bad pension? If you are unsure, how can you tell whether the pension is good or bad?
Instead of offering non-bias financial advice, they are selling products on a commission basis without the best interest of the investor (you).
Getting paid for a service is fine but not disclosing the fees the reasoning and the structure to take proper financial advice is not. Unfortunately, this is more than common in the expat community that are sold long term saving plans 25 years+ due to the commission. Statistically, the term that people complete the most is a 10-year term and even if you are thinking about a plan like this, find a plan with some flexibility as a lot can change in 10 years!
I have people message me on a weekly basis asking what options they have in regards to getting out of these 25-year plans after the first 2-5 years of contributions and have to tell them that they don’t have much option other than to lose the wealth that they have put in the plan. Even worse, I have seen cases where they have not been told about the inflexibility of these plans and believe they can redeem all wealth with no penalty.
It’s quite staggering the number of expats I have to tell the harsh truth to. These have managed to be successful due to the low familiarity with the rules outside the jurisdictions where expats reside, these can make expats vulnerable to pension misselling and on the surface make these look attractive options.
This has lead to many investors fighting for compensation in group claims against retirement firms, fund managers and IFAs.
Due to the misselling of expensive life bonds, which are expensive funds and having long term saving contracts that require monthly contributions. Now, these can work for the right person(s) and I have written a number of blogs on how to use these and cheaper alternative options for you as an expat. Some of these include going into a flexible lower-cost platform option.
Having had some people ask me for these products (mainly sophisticated investors) saying they want these due to not contributing to a pension where they are presently residing and want to make up this by contributing to something similar. But,
- Is a very small amount of what they are earning (normally 4-6% so they don’t notice it and similar to what they would be contributing to a pension back home).
- People that have enough to cover the whole term if needed to surrender.
- They are looking for a short period of time. But, these are few a far between. The problem, is that most people get sold these when it is not feasible for them being put on 25 year contracts when no real financial plan has been undertaken. That could put 50% of the first years premiums into IFA life companies pockets.
https://www.ft.com/content/3d0178ee-fa4b-11e5-b3f6-11d5706b613b
Some of the misselling guidelines are
- a fee to transfer your UK pension of about 15% of its value
- an expensive offshore bond “wrapper”, costing you another 2% a year
- underlying investments, weird and not so wonderful funds like fine wine and land bank schemes, but more often so-called ‘life bonds’ sold by insurance companies that cost you another 2% a year
- other hidden commissions for the ‘free’ advice you received for all this
In this cookie-cutter process, your needs as an individual are totally left out of the equation.
No one wants to spend their expat career or retirement embroiled in an ugly court battle – with no guarantee of winning. Thoroughly check any financial adviser before you start and get explicit costs. If you think you have been mis-sold a bad pension, get a pension review from a quality independent financial adviser as soon as possible.
If you are looking for a fee-based model or have one of these and want to know your options feel free to get in touch below or email info@investmentsforexpatss.com
