Concerns raised over undisclosed QROPS transfer fees of up to 12%

Concerns have been raised over transfer fees of up to 12 per cent being charged on Qualifying Recognised Overseas Pension Scheme transfers, which are reportedly not disclosed to clients.

Transferring to a QROPS is a popular option for those who do not want their pension fund to be subject to UK tax particularly when it comes to managing Lifetime Allowance exposure.

However, Strabens Hall director Adam Benskin has warned that investors need to be aware of the fees that advisers can charge on QROPS transfers. He explained that offshore financial advice is still largely offered on a commission basis and therefore can be, “very lucrative for advisers, who are often motivated to encourage clients to make transfers to QROPS which may not be in their best interests”.

Furthermore, in many cases, financial advisers have no obligation to divulge fees or commissions received from implementing transfers to QROPS.

“Our Hong Kong office has noted such trends in Asia, and has been engaged by a number of clients this year who have been miss-sold in this manner. A well-known international trust company disclosed to us that it was administering transfers out of UK final salary pension schemes with an average value of £80,000,” Benskin explained.

“The fees levied on each transfer were up to 12 per cent, and were not being disclosed to the client. Moreover, there were no obvious benefits to making the transfer, and significant investment returns would be required to not only recover the transfer fees, but secure pension benefits equivalent in the QROPS to those foregone in the UK scheme.”

In addition, he also warned that individuals can incur fees if their advisers recommend frequent changes to investments: “Moving in and out of different asset classes, whether bonds, equities or switching between funds, changing currencies and investing in more exotic options within QROPS, such as structured products and other instruments, can often be expensive, and the excess returns do not necessarily outweigh the transaction costs.”

“These investments can be held in an offshore bond wrapper that has been established on commission terms. In addition to the annual charge on the investments and annual fees for maintaining the offshore bond, there can be transaction costs, fund charges and dealing fees. All of these charges can easily outweigh any benefits of transferring to a QROPS.”

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