Buy Out Bond - Best Buy

[cremeegg]

I recently posted a question on another thread and after 70 posts I am struggling. Not from lack of information but from too much info.

I wish to purchase a buy-out bond which must be a QROPS by the UK Revenue.

My intention is to get 100% exposure to as broad based a range of equities as possible on a passively managed basis, and leave the bond untouched for 15 years.

Once this has been set up I don't see why I would need ongoing advice.

The amount in question is €30,000, I have other pensions and property investments.

I have two questions;

• What is the cheapest way I can purchase this buyout bond
• Is there any reason why this plan is unwise.

Please be considerate of my limited understanding of pensions and small attention span.

 

[Smoneen]

Not all buy out bond product providers can facilitate a QROPS transfer. Not all of the providers have applied for QROPS approval due to the ongoing reporting requirements necessary for the HMRC. Even those that have been approved have rules on what they will accept. The FCA in the UK also update their advice requirements for QROPS transfers in 2018 making the whole process even more cumbersome.

Two issues that might restrict your options for transfer:
1: number of years since you were last tax resident in the UK
2: type of benefit being transferred - DB or DC. If you are transferring contracted our rights or former contracted out rights consider getting an update on your UK state benefit entitlement prior to transfer.

In very brief summary depending on when you were last tax resident in the Uk your transfer may be subject to an unauthorized transfer tax. Following this if you cease to be EU resident in the 5 years following transfer your fund can be subject to an overseas transfer tax.

DB transfers exceeding £30,000 need to be signed off by a UK authorized Advisor (pension transfer specialist) before the transfer will be allowed. The default FCA guidelines for advisers are that DB transfers are never a good idea.

I’ve seen QROPS transfers take up to 8-10 months to be completed. The UK providers can be extremely difficult to deal with & their due diligence requirements can be never ending. You really have to know what you’re doing.

I’m not sure from your post if you’re fully up to speed on the QROPS process and the necessary requirements but if you’re not then I’d strongly suggest you find a good Advisor who can help you with this. In my opinion going it alone and looking to save a few bps for advice would be very shortsighted.

Ongoing advice is not just about a passive versus active investment strategy. The QROPS arrangement might have future tax implications for your benefits. This is one area where a good Advisor will guide you through in the future, worth the ongoing advice fee in my opinion.

To respond to your questions directly:
1: this is a complex transaction. Without knowing your specific circumstances the cheapest product is irrelevant (I’m presuming by cheapest you mean the lowest amc for the highest possible allocation).
2: QROPS is a necessary requirement from any pension transferring from the UK. Again without knowing the benefit type and all relevant details to your UK benefit it’s impossible to say if the decision to transfer would be wise. The current QROPS rules were drafted with the UK being part of the EU. If the UK do exit the EU no one knows how this will impact the current regime.

 

[cremeegg]

Thanks Smoneen, a very informative post.

The pension I wish to transfer is DC rather than DB.

I’m not sure from your post if you’re fully up to speed on the QROPS process and the necessary requirements but if you’re not then I’d strongly suggest you find a good Advisor who can help you with this. In my opinion going it alone and looking to save a few bps for advice would be very shortsighted.

Certainly I am not. But what is a good advisor.

My advisor, part of a good sized firm, spent 4 months dealing with this before coming back to say that the initially proposed PRSA could not accept the transfer due to QROPS. I had understood that this was some special requirement that applied to my pension, but you tell me that any receiving pension must be QROPS. There is an issue of contracted out rights.

Now he wants to put me in a buy out bond with 1.25% AMC and monthly fees of €5.25. And I am paying him directly for his work.

I have lost all confidence in this.

As regards ongoing advice, my understanding is that the QROPS requirements last 10 years. If the thing is set up properly and f I don't intend to touch the new pension for longer than this is there some reason why I need ongoing advice.

 

[Smoneen]

4 months to come back to you on the transfer to PRSA.....I know from experience how tedious the QROPS process is but I can’t see how telling you that one particular product wasn’t suitable could have taken so long. If they were waiting for any clarification from the UK provider I guess this is possible but they should have been aware of the approved QROPS products in the market market - there are only a few. I only know of one PRSA product & having looked at the legislation around this in detail I’m curious as to how that received approval.

1.25 amc with a €5.25 policy fee and separate advisor fees is far too much. There is absolutely no need for a policy fee on a single contribution policy such as a buy out bond in my opinion. The 1.25 amc on its own is about standard & I wouldn’t consider it excessive, presumably that includes an ongoing yearly trail commission for the Advisor.

Sorry that you’ve lost confidence in the process. QROPS transfers are restricted by the limited number of providers who have sought approval from the HMRC. Nonetheless it is possible to negotiate better terms than stated above. Again I have to reiterate, the whole process of transferring from the UK is now a hair pulling exercise, for all parties involved.

If you are in a DC contract in the UK have you spoken to the UK provider to see what your options are for fund switching within the UK contract? Does the UK policy/scheme allow for investment in a passive strategy that suits your needs? What it your particular reason for transferring it to Ireland? I don’t expect you to answer these questions directly but maybe they might be some alternative considerations for you.

 

[cremeegg]

What it your particular reason for transferring it to Ireland?

Originally I intended to put it in a self administered pension. However that is not permitted with this fund because of QROPS or the contracted out rights situation or both.

When that became apparent, I decided to continue with transferring it because of Brexit. Not because I think I am smarter than the foreign exchange markets, but because my future requirements will be in Euro and having a pension in £ introduces uncertainty, (Brexit increasing the uncertainty).

4 months to come back to you on the transfer to PRSA.....I know from experience how tedious the QROPS process is but I can’t see how telling you that one particular product wasn’t suitable could have taken so long.

I have the feeling he wasn't up to speed on QROPS before this. In fact I think the reason the fund cannot be transferred to a self administered scheme is because of the contracted out rights rather than the bare QROPS issue itself. I am not sure he understands this even now.

The 1.25 amc on its own is about standard & I wouldn’t consider it excessive, presumably that includes an ongoing yearly trail commission for the Advisor.

Yes it does, why should I pay an ongoing fee to an advisor for a one off purchase of a buy out bond. To me this smacks of bad faith. Is that unreasonable.

 

[Andrew365]

Interested in this as I have a small UK pension pot that I wanted to transfer back to Ireland but initial research it seemed way to much effort.

 

[stanman]

Hi @cremeegg

Any update on what direction you took this in the end?

I am investigating similar (i.e. transfer from UK to a QROPS approved option here) for a family member but not sure if transferring it is worth the hassle or not.

Thanks
Stan

 

[deanpark]

I am in process of doing currently. Transferring about €200k from my old UK DB scheme to RoI QROPS. Costing €4.5k upfront of my money to get a mandatory actuarial report done to satisfy(i.e. tick box for) UK scheme administrators which is prohibitive amount of money for lower t/f amounts.