Do you have a U.K pension and moved offshore? Have you been asked to move your pension or review your U.K pension? This article will go over the fees of U.K pension costs and look at how much does a pension transfer cost!
One expat I have met said that he transferred his pension for free. I then told him that he paid around 10,000 GBP in fees for this pension transfer. The advisor never mentioned this when they transferred their pension.
Ongoing Scheme Costs For Pensions and Transfers
If you are in one of these platforms, the trust fees and platform fees can add up, not to mention if you are put in bond structures like RL360, PIMMs, FPI, or OMI and then wrapped in a trust.
The initial cost with funds can be 3% a year, however, if you withdraw or take your PCLS most of the platforms charge a set amount on what was transferred. For example, you transfer 100,000 GBP and you take your 25% PCLS at 55. You have 75,000, but the bond is still charging you 1% of 100,000.
This can add up as you are being charged on the amount transferred!
Adviser Costs on Pension transfers
The fees on pension transfers differ depending on what option you have chosen.
Fee-based advice – This can be a flat fee, an hourly rate, or a percentage. Fee-based advisors act as the fiduciary for their clients. They have an obligation to work in the client’s best interests. This restrains them from a conflict of interest in selling products that are not deemed fit for the client.
The client must be given a variety of options regarding the portfolios deemed feasible for their level of risk and the advisor must assess all levels of risk prior to any recommendation.
Commission Based – Advisors earn money solely on the products they sell to clients. This is done from remunerations from the companies, funds and platforms. In the offshore world, these are normally in a bond-like structure from the companies described above.
The regulation on the products is getting significantly better and the commission on pension has been capped as of 2020. The regulation is still subjective.
Trustee Costs
These do vary depending on the Trustee, I have written a number of articles on the cost of Trusts in my SIPPs articles. Some of the better ones in my option as of witting in 2021 are Forth Plus which is 850 GBP one-off and 450 GBP a year or Novia that works out to be 180 GBP a year.
https://investmentsforexpats.com/offshore-pension-plans-for-expats-2/
https://investmentsforexpats.com/best-sipp-providers-and-platforms-for-uk-expats/
Platform and Bond Costs
The platform is another layer of cost, this is where the costs can add up. The platforms if the investment is based in a SIPPs or an Qrops acts as a tax wrapper.
The platform has the potential to help utilise the growth of your pension. As I have stated in a number of articles about investment platforms, the fees are cheaper, you have greater options, and they are superior in many ways to bonds. Most advisors who are after the commission would sell bond platforms as the fees can be as high as 11%.
Furthermore, the bonds offer no significant protection and offer the same tax efficiency. As it’s wrapped in a trust and many of the investment platforms are domiciled now in the Isle of Man or other financial centres these bonds have been sold on.
Fortuitously, for investors, the regulators have stopped these bond sales.
Fund Costs
There are two types of fund cost to consider within a pension transfer which are, clean funds and commission paying funds.
Clean funds – This means that you have no entry or exit fees. The fund’s fees vary on whether the fund is passive or active. Passive funds such as Vanguard and Ishares cost from 0.2%-0.3%. Active funds can cost 0.6%-2% for ongoing costs.
Commission paying funds – Will pay an entry fee of 1% -5% for going into the funds, also you can add a trail of 0.75%. These funds also come with exit fees or surrender charges of around 4%. If you are seeing a commission advisor check the ISIN number and go see the fund on an independent rating agency such as Morningstar and check the rating the fund performance and the ongoing and initial charge.
By knowing what type of fund you will be going into, you will know more about the costs and be able to work out the overall cost and usually it can be higher than you expect.
For an independent rating agency, my preferred ones are Morningstar & Standard and Poor
Case Study – Fee-Based Financial Advice
If you have an expat with a pension and put it into an International SIPPs. You can’t set up a SIPPs in the UK because you don’t live there so it would have to be an international SIPPs.
If it was Fee-Based financial advice there would be an overall cost for advice and the transfer of the pension, then you will need to add any charges where there is an exit fee, entry fee and platform fees.
Case Study – Commission Based Financial Advice
- International SIPP – 400-600 GBP one-off and 180-500 on going
- Offshore Investment Bond – 8% Ongoing cost 1.5%
- Funds – 4% commission Ongoing cost 1%-1.5%
- Adviser Transfer and Advice Fee – 0%-1%
Luckily, the regulation has stopped putting pensions into a bonds but still be aware of advisors still trying to use these bonds. These bonds offer high commission and a lot of the time it is not for the benefit of the investor, it benefits the advisor more.
If you want me to review your pension and let you know if an advisor has put you in bonds or to make sure your portfolio is performing, please email me using the form below!
