One of the most common questions that I get asked, is what is the cost difference between SIPPs and QROPs (ROPs). So, today I will look at the QROPs Vs SIPPs cost.
This is an important aspect as many advisors will see it is down to the performance, this is of course partly true, but the other is down to the cost.
I have come across very few QROPs that have managed to beat inflation due to the high costs of the bonds that they are put in. I have written a number of articles on these but usually, the bonds have a term structure of 10 years, an admin charge and a provision that the cost is on the initial amount put in for 10 year period.
So, for example, you have a £100,000 pension and withdraw 25% in year 1 you will be paying the annual charge on the initial £100,000 deposited. Some people have come to me paying 5% and up a year due to this.
Some reports that I have seen claim that the charges are rebated. However, the charges apply to the commission paid out. It’s important to highlight what you get back from your investments so it is not eating away at the performance and reducing your pension funds.
Although, I have stated in my other blogs that the FCA has cracked down on these high fees and hidden commissions, yet still seem to be a factor.
Transparent SIPP and QROPS fees
Having highlighted the cost of many platforms and trusts in other articles I will go over the generic costs you would likely pay for a QROPs or SIPPs.
This is designed to help you make the right informed decision. If you have not been told about the fees, be wary as any fees and costs should be disclosed prior to making any financial decision.
- The example is based on an example of platforms having 150,000 GBP basis. It is used as an example and should not be used as a definitive guide.
- The QROPs fees are based on the average cost in 2021.
- Cheapest option is based on 2021 prices and known in the open market.
- Based on DC pension as DB will need an FCA report.
| Average QROPS fees | SIPPs fees |
| Trustee QROPS Fees – Between £180 – £2,500 upfront and then per annum | SIPP Fees – Between £100 – £650 upfront and then per annum. Cheapest option is £180 https://investmentsforexpats.com/pension-trustee-reviews-for-international-sipps-and-qrops/ |
| Basic Platform Fee or Bond charge including an annual fee, admin fee, dealing costs – Typically 0.3-1% of your invested fund per annum | Basic Platform Fee including an annual fee, admin fee, dealing costs – Typically 0.15-0.5% of your invested fund per annum. For a £150,000 pension, it would be 0.45% on the Novia platform. It goes down in tiers from 0.45%-0.15% on amounts over £5 Million. |
| Bond Commission charges – Typically 1 – 1.5% of your invested fund per annum over a typical period of 5-10 years is paid upfront. | SIPP should never use a bond – No charge |
| Fund Fees – 0-5%. This depends largely on the funds. If passive, active, or entry or exit fees. Initial cost only applies on bond based products which we do not recommend and account or fund exit fees may apply – up to 3% initial bid/offer spread. Also, may include mirror funds. The best way to find out by putting the ISIN on Morningstar this will help get a gauge for the rating (out of 5), the charges and the AUM of the fund. | Fund Fees – 0-5%. This depends largely on the funds. If passive, active, or entry or exit fees. Initial cost only applies on bond based products which we do not recommend, and account or fund exit fees may apply – up to 3% initial bid/offer spread. Also, may include mirror funds. The best way to find out is by putting the ISIN on Morningstar this will help get a gauge for the rating (out of 5), the charges and the AUM of the fund. For SIPPs, we stick to high rated active funds or low-cost passive funds. As I have strict fund selection criteria. |
| Ongoing Fund Fees – Varies up to 0.2%-2% per annum | Ongoing Fund Fees – 0.2%-2% we normally look for funds in the range 0.5% average if active option or 0.25% if passive. |
| Ongoing adviser charges – Typically, 0.5%-1.5% please speak to your advisor prior also, see what service is offered for this. | Ongoing adviser charges – Typically, 0.5%-1.5% please speak to your advisor prior also, see what service is offered for this. |
| TOTAL QROPS Fees from a typical overseas adviser – This depends on what you opt for but a fee for a bond from an advisor could range from an initial cost of £700-£1500 and an ongoing of £800-£3000 for a typical £100,000 pension. Evidently, this changes a lot so it is worth seeking a seconds opinion. | TOTAL SIPP Fees – This depends on what you opt for but a fee for a bond from an advisor could range from an initial cost of£700-£1500 and an ongoing of £800-£3000 for a typical £100,000 pension. Evidently, this changes a lot so it is worth seeking a second opinion. |
As seen in the table above how vital it is on transferring your pension correctly. If you are worried about hidden fees, go seek a second or third opinion from a fee-based advisor.
Often you will see much of the fees listed in the QROPS column above are hidden “implicit” commissions that you may not be aware even exist. Furthermore, we have written a pension guide on bonds and what to look out for as well as a number of blogs on the new regulation.
if you do have any questions about QROP’s, SIPPs or pensions in general then please email me at info@investmentsforexpats.com
