If you’re considering transferring from a final salary pension scheme to a QROPS, here are 8 questions you need to answer “yes” to for it to make sense.
1. Is your adviser taking a fixed flat fee for advising on this transfer and not taking commission or a percentage of the transfer value? QROPS are big business for unscrupulous offshore advisers because hidden fees and additional product charges are used to generate large upfront commissions. You need total transparency as to what your adviser is going to be paid and how this will effect your ongoing charges. Don’t proceed with any adviser who won’t declare in writing their commissions, and don’t accept a percentage amount but negotiate flat fees.
2. Have you considered the psychological impact of taking on this investment risk? The pretty graphs your adviser shows you depicting steady 8% returns from the recommended funds are deceptive to say the least. You must not underestimate how stressful you may find the responsibility of managing a large transfer value that was previously a guaranteed income source. Make sure your adviser has really discussed your risk preferences, and the likely volatility associated with the investments you will need to adopt to match the income stream you are foregoing.
3. Do you understand the impact of the sequence of investment returns? This is rarely talked about, particularly by advisers trying to sell you particular investment funds, but the sequence of investment returns will be the biggest factor in whether your QROPS turns out to be a smart or disastrous move.
4. Is your adviser offering impartial investment advice? In most cases they won’t be. The underlying investments are another huge source of hidden commissions for offshore advisers. If there are entrance or exit costs to their suggestions, or if they are recommending structured products or notes with a lock in period then they are chasing high commissions. Our advice: start looking for an adviser you can trust!
5. Has your adviser built comprehensive cash flow models showing you how the QROPS can potentially match the final salary pension you will be giving up? And have they
6. Do you understand how your personal biases and heuristics will skewer your decision making? The lump sum seems so tempting doesn’t it. Such a large bulk of money to leave on the table. But we are not very good at projecting the value of a long term income stream like a final salary scheme. Again your adviser needs to quantify exactly what the value of the DB pension is and compare it like for like with the QROPS alternative.
7. Have you considered how this could go wrong? Your investment returns will not be linear and will rarely match the promises being made by advisers who are operating within a blatant conflict of interests. If they are selling you they are lying to you.
8. Has your adviser discussed other ways to achieve the same outcomes? There are many options that most advisers don’t talk about – when they are selling you that is. It is quite possible to achieve similar outcomes to those which attract you to QROPS – for example leaving wealth to your family – by using insurance products in conjunction with the final salary scheme. Have you really discussed all the options with your adviser or has he steered you towards the transfer and his eye-watering commissions?
However you answer these questions, this is a huge decision. So why not get a second opinion and contact us today?