Have you transferred your UK offshore, read this to ensure you are getting the best cost and transparency of services.
I get emailed daily with expats asking me, if am I paying too much for my U.K. pension that I transferred offshore. I have been told about the benefits of going offshore but seem to be paying too much.
Although, the industry is changing that hasn’t stopped 1000s that have already transferred from paying too many fees and not having a properly constructed portfolio for their investments.
I wanted to do an article to address this and give investors the options for cheaper options and some DIY options with the aim to stop the misuse of these products in pension transfers and lump sum investments and investors getting cheated on commission-paying products without knowing the options that they have.
Many pensions have been put in offshore bonds for no reason other than they pay a commission to the advisor. In my eyes, this doesn’t constitute proper advice for the investor.
How to tell if there is a commission paid on products?
- Warning signs are if an IFA says he is paid by the fund provider or works for free, this is because there is a payment somewhere else down the line! Work with one that charges AUM or hourly fee and is upfront about fees.
- The IFA is not using FCA regulated fee-based platform or is not qualified.
- You are paying more than 1% a year in your total fees (IFA, Platform, funds fees, trust fees).
- The IFA has used an offshore bond such as RL360, Utmost for your pension transfer other than a platform.
- The funds are not mainly low-cost ETFs and are low cost actively managed funds charging more than 1% a year.
- You have a high percentage of your pension/lump sum in structured notes or other alternatives such as property funds.
How do these offshore bond products work?
Many will not tell you how these products work logistically so I want to aim to disclose how these work so investors get a better insight and don’t pay too many fees.
Below, is the discretion of a popular offshore bond fund RL360 that often gets used for commission and will show if you are paying too much.
RL360 PIMs have been one of the most popular offshore bond platform options for expats in the last 10-15 years for both pension transfers and lump sum investments.
The Charges
This is one aspect that can be subjective.
Before I go too much further I want to explain that this is a commission-led platform (like other offshore bond platforms) so you can have commission built into this product that is not disclosed. This dramatically affects the cost of the platform.
Also, unlike FCA platforms it allows funds to charge upfront and trail for advisors thus giving them another kickback. For this reason, be very wary of this fact and watch out if you are being recommended this platform.
Although, having analysed it on my offshore bond cost review on the blogs it does come out as average cost in relation to other bond options such as Quilter, Utmost with full commission 7% upfront to the IFA.
Costing 1% a year for 10 years with an admin charge of 400 GBP. The 7% taken upfront is taken from the policy over the 10-year period of the plan.
The study found that the RL360 PIMs was best used for 20 years or more for the 10-year establishment charge option. This is due to the fact that after the first 10 years, the charges drop to just the admin charge (400 GBP or currency equivalent).
However, the problem with this is the lack of flexibility. The most common option being advised/sold is the 10-year establishment period and many investors that have this product might want some flexibility within a 10-year time frame.
An example of how the charges work is: if you were to put $100,000 you will pay $1000 for 10 years (at the full commission of 7% to IFA) and the admin charges 400 GBP a year for the 10-year period. Thus if you were to take out $50,000 at year 2 of the plan you will still be paying $1000 (2%) for the next 8 years plus the admin charges. This can really eat up any gains.
This lack of any flexibility and the fact I have noticed that for people who have had these policies this information has been omitted in the past. Before investing I would make sure you are fully aware of how the product works and the charges. You can ask for a full breakdown.
Commission vs full charges
The base charge for the 10-year period is 0.067% (seen below) and has a surrender charge of 0.670% compared to the full commission. This makes it at least from a financial perspective much more competitive than the full 1% a year cost with less flexibility if the full commission.
PIMs have an upfront model where no exit charges exist, which provides some flexibility
As you can see from the images above the 7% upfront to the advisor is a much more costly route.
Add to this, the dealing charges are 40 GBP (the first 10 dealings are free) which can really add up to the cost of the portfolio.
How does the cost compare to other options?
In regards to platforms in the offshore or local market space, it doesn’t compare for cost and flexibility. The flexibility on RL360 is much less and the costs are much higher.
Take for example you were to put 100,000 GBP in a platform or RL360 at the base and full commission cost.
One point to note is that the advisor can charge up to the full amount or take less commission upfront I.E 2%
| Platform | Admin cost (GBP) | Platform annual cost (GBP) | dealing cost (GBP) | Total cost (GBP) | Notes |
| RL360 10 Year surrender no commission | 400 | 67 | 20 | 467 (plus dealing and custody) | Lacks flexibility for 10 years and charges on the original premium |
| RL360 full commission | 400 | 1000 | 20 | 1400 (plus dealing and custody) | Lacks flexibility |
| Ardan | N/A | 400 | 5 GBP (40 GBP for notes) | 400 (GBP plus dealing charges) | Full flexibility |
| Novia | N/A | 340 | 5 GBP | 350 (plus dealing charges) | Full flexibility |
As you can see from the table above that if completed on the base cost and compared over a 10-year time frame it is pretty reasonable if you don’t move your investments over 10 times in that period.
If the base cost is compared to other bond platforms it does get a bit more complicated to analyse the charges as platforms have different establishment periods (please see my blog on offshore bond costs for a full review). But, some of the more flexible bond options such as ITA, Movmentum and Hansard have been compared below.
| Platform | Admin cost | Annual cost | Dealing cost | Full cost | Notes |
| ITA Access portfolio plus | 450 | 1000 | 45 | 1450 | This includes 0.5% to the IFA but has full access for a short period of time |
| Hansard Z1 | 412 | N/A | 40 | 412 | 1% is charged upfront initially |
| Momentum | N/A | 650 | 40 | 650 | Fully flexible |
| ITA access 8000 | 450 | 250 (first 8 years) | 40 | 700 | The annual cost is only for the first 8 years |
When you compare the cost of RL360 for like-for-like bonds at the base cost it does not compare too badly.
Funds to be aware of
Another aspect to consider is the platform and fund options where you could be getting charged too much.
Personally, I would stick to low-cost ETFs on the platform. However, some expats are also put in fee-paying funds to give advisors another kickback.
From an investor’s point of view one way to check if you are getting the best funds is to put the ISIN in Morningstar and check the fees, cost and its performance against the benchmark (although this is not any guarantee of future success) and for the most part, stick to low-cost ETFs.
Funds to be aware of (in the high-class range).
See an example of two of the same funds with different charging structures (always check the ISIN) one fund can have 5% upfront and 1.81% (which mainly 0.5% goes to the IFA) and the other is clean.
- Guinness fund range (certain class)
- Tilney
- Fundsmith (certain class)
- Emirates
- Harmony
To name a few of the funds that are used by IFAs for kickbacks.
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 writing in 2023 are Forth Plus which is 850 GBP one-off and 450 GBP a year or Novia which works out to be 180 GBP a year or my expat Sipps.
| SIPP trustee administration charges (excluding platform charges) | ||||
| SIPP | Set up fee | Transfer in fee | Annual fee | Transfer out to other UK scheme |
| MyExpatSIPP | £0 | £50 | £150 | £75 |
| Forthplus SIPP | £400 | £0 | £400 | £0 |
| iPensions (Momentum) Adviser SIPP (under £1m) | £300 | £0 | £500 | £500 |
| iPensions (Momentum) Adviser SIPP (£1m to £1.5m) | £300 | £0 | £1,000 | £500 |
| iPensions (Momentum) Adviser SIPP (£1.5m to £2m) | £300 | £0 | £1,500 | £500 |
| iPensions (Momentum) USA SIPP (under £1m) | £300 | £0 | £500 | £500 |
| iPensions (Momentum) USA SIPP (£1m to £1.5m) | £300 | £0 | £1,000 | £500 |
| iPensions (Momentum) USA SIPP (£1.5m to £2m) | £300 | £0 | £1,500 | £500 |
| PSG Harbour International SIPP | £399 | £75 | £399 | £499 |
| Sovereign International SIPP | £300 | £0 | £500 | £250 |
| STM International Pension Plan (Fixed Rate) | £150 | £0 | £550 | £860 |
The tax advantage of offshore bond platforms is it worth it?
If you want to know more about this topic then I have written some blogs which I have included below, please read those. This can come in useful if you are looking to relocate to high-tax countries such as the U.K and Australia due to offshore bonds having favourable tax implications and bonds in favour of the country’s tax regulations such ATOs 10 year rule of the U.K and 20-year 5% rule.
Offshore Investment Bonds for UK Expats
Unfortunately, offshore bonds have mainly been sold on this basis alone and pensions have next to no use to be in them.
In reality, the costs compared to the tax implications well outweigh the advantages.
So, most investors would be more inclined to go for a low-cost platform and for example, a platform such as Ardan has an automatic sell option to mitigate the tax on capital gains if you go back to places such as the U.K.
This is not personal advice but those looking at offshore bonds I would only invest if:
- Should be looking to relocate to a high-tax location and presently in a low-tax location where the offshore bond tax implications are favourable.
- You don’t need liquidity for the mid-term. As has been shown the longer you hold the offshore bond the cheaper they become. But, in reality, not many people can lock up money for 20 years plus.
- The amount should be $500,000 or at least $250,000 to make full use of most of the tax advantages and the fixed admin costs.
- At the base cost as shown above in RL360 PIMs 0.067% plus 400 GBP admin fee.
If you fit these criteria and an advisor can clearly justify the rationale for RL360 showing the reasons over a low-cost platform in both cost and tax saving ability opting for a pure fee-based approach I.E 0.5% a year. This might be an option for you.
Fee-based Vs Commission advisor
Fee-based advice – This can be a flat fee, an hourly rate, or a percentage. Fee-based advisors act as fiduciaries 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 of the products is getting significantly better and the commission on pensions has been capped as of 2020. The regulation is still subjective.
Case Study – Fee-Based Financial Advice
If you are an expat with a pension and put it into an International SIPP. You can’t set up a SIPP in the UK because you don’t live there so it would have to be an international SIPP.
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 ongoing
- 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 bonds but still be aware of advisors still trying to use these bonds. These bonds offer high commissions and a lot of the time it is not for the benefit of the investor, it benefits the advisor more.
What is the cheapest & cleanest option for my pension if I am transferring in 2023 or I have already transferred?
I will aim to answer this in two parts
- If you have already transferred your pension and put in an offshore bond you will likely have surrender penalties due to the commission taken upfront from the IFA so it is worth seeking advice on your options with regard to the surrender penalties.
- The Cheapest platform and cleanest platform trust for U.K. pensions in 2023 are in the table below to my knowledge and would only look to use these due to being fee-based.
These platforms have FCA regulations and only allow for clean funds and are fee-based.
| Platform Name | Cost of Platform | Cost of Trust |
| Novia Global | 0.34% (based on amounts sub $1 million) | 180 GBP (Novia) |
| Praemium International now Morningstar (with My Expat Sipps) | 0.35%-0.25% (based on sub $1 million) | 150 GBP (My expat SIPPs |
With funds costing 0.2% on ETFs and IFA charging 0.5% the full cost should be around 1% annually. If you are paying more than this you are most likely getting overcharged.
Conclusion
I hope this is somewhat useful as you can see if you have transferred your pension into an offshore bond you may well be overpaying however in 2023 you do have FCA-regulated fee-based platforms that may be cheaper and cleaner for expats.
If you are paying over 1% per year for the full cost of your pension charges and they are in an offshore bond I would seek a second option and look at the options which might be available to you.
Some of my blogs which might help you with more information:
- My Options Instead of Offshore Savings Plans?
- UK Expats Self Invested Pension (SIPPs)
- Offshore Bonds vs Global Platforms
F&Qs
Can I transfer myself?
No, you can’t offshore you can however get an IFA to sign off for a fee and then manage your own portfolio. This may be advisable if you are comestible managing your own portfolio.
Can I transfer my IFA?
Yes, you can it normally needs a sign of advisor form.
How do I check the fees on funds or being overcharged?
Get the ISIN and check them on Morningstar or other websites.
How do I know if I am paying too much?
Normally, most pension transfer companies these days have an average of 1% upfront for the transfer and 1% AUM with all the fees any more than this is normally too much.
What should I do if I am in an offshore bond and want to get out?
Firstly, would look at the surrender penalties and if it makes sense to move to FCA’s clean-rated platform like the one above. Speak to a qualified IFA prior (probably not the one that sold you the offshore bond at full commission taking 5%-7% upfront).
How should my portfolio be set up in my pension?
This is not something that can answer but any respectable IFA would use a template asset guide and use this to your circumstances. Something like the one below is taken as a template.
How do I know what platforms are clean and fee-based?
Praemium and Novia global are two of the main fee-based platforms only for pension transfer and would highly recommend only using these due to the cost and transparency of the platform.
