So Who Moved Their Pension Into A Qrops This Year?

[GuestHouse]

With stocks going through the floor it begs the question - Who moved their Defined Benefits pension into a QROPS in the past year and how much is it hurting right now?

Edited July 17, 2008 by GuestHouse

[pkrv]

With stocks going through the floor it begs the question - Who moved their Defined Benefits pension into a QROPS in the past year and how much is it hurting right now?

Hi GuestHouse - I know this is not exactly on topic (I moved out of equities some time ago) but I do value your posts. I know we don't always agree but your input always helps.

Do you have a view as to why cash, (in a SIPP) which is in such short supply, is not performing particularly well in terms of interest rates?

Edited July 17, 2008 by pkrv

[GuestHouse]

Do you have a view as to why cash, (in a SIPP) which is in such short supply, is not performing particularly well in terms of interest rates?

It's a curious point.

I was looking at the bonds various banks/building societies where offering a few weeks back - It is possible to get reasonable interest rates (not sky high) and oddly the interest rates for 9 month bonds were better than those for 12 months.

My conclusion on this is that the banks are playing a bet that money supplies will increase in the next 9 months. I also think they are playing something of a balancing act trying to get sufficient funds through the door without committing to the longer term liabilities that longer term bonds entail.

The conclusion I draw from that is perhaps the cash crisis is not as bad as it is made out to be.

--

But as you say, that's off topic.

To bring it back on topic. We've been assaulted by the QROPS Hard Sell this past year - It is my impression that most of this selling has been aimed at getting people to move pensions into Equity based schemes - hence my question.

Keep in mind I'm asking about DEFINED BENEFIT SCHEMES.

Sort of linking this back to your point on interest rates: Up until the mid 90s very many Defined Benefit Schemes offered what we would regard now as 'Generous Growth' to deferred members. That is many people who stopped paying into Company Defined Benefit Pensions pre the mid 90s (but left the pension fund in place) are receiving growth to their fund at these 'Generous Rates' - 5% per annum is not uncommon.

Moreover, because the terms of these pensions is covered by contract law, the later withdrawal of these 'Generous' company contributions to Deferred Defined Benefit Schemes is only withdrawn for fund values built after the date of the contract change.

Such funds are not, as the QROPS hard sell would have us believe, stagnant..... They are very often growing and a quite respectable rate.

--

But there's also the double whammy - One of the other 'Benefits' of QROPS is the ability to withdraw over 25% of the fund (This is not strictly in agreement with the terms of the 'Qualification' - The Q in QROPS - hence the debacle in Singapore.... But human nature being what it is - Take out a bigger chunk of the fund and, as we now know, sit back and watch the remnant dwindle with the stock market.

OK I know, stock markets will rise again..... but wasn't part of the Hard Sell also 'get out early' and 'enjoy your money now'?

Thailand seems so cheap and this deal seemed too good to be true....

But then you know what they say about 'Deals that are too good to be true'........

[AFKAFSinLOS]

Sort of linking this back to your point on interest rates: Up until the mid 90s very many Defined Benefit Schemes offered what we would regard now as 'Generous Growth' to deferred members. That is many people who stopped paying into Company Defined Benefit Pensions pre the mid 90s (but left the pension fund in place) are receiving growth to their fund at these 'Generous Rates' - 5% per annum is not uncommon.

5% may not be not uncommon. However, I would say lower of 2.5% and inflation is more towards the norm. The key point is that 5% p.a. is a poor return in my view, which I assume is why you put it in inverted commas. Even after recent stock market volatility, I'm still earning double digits after tax and charges...

BTW Defined benefits schemes still need to be funded, by a combination of 1) member contributions, 2) underlying investment portfolio, (which Paul points out will have an equity element to it) 3) topping up deficits/ (withdrwawing surplus windfalls). Minimum funding requirements introduced by UK Govt, while making it "safer" for funded schemes by reducing volatility, actually have ironically made it harder for them to earn decent returns and fund themselves, as they often reduced the amount that could be invested in equities, and increased fixed income amounts.

[AFKAFSinLOS]

Members from the following professions and their professional bodies could be relevant to this topic: Accountants, Actuaries, Lawyers/Solicitors, Taxation Specialists,...etc

[GuestHouse]

Some points to note here:

Nobody has yet come forward with a positive response to the question I have asked. - OK We've had a salesman tell us he has lots of happy customers but still nobody who has transferred a defined benefits scheme to QROPS this past year.

Our Salesman has not yet given any real break down of costs - is this because he doesn't understand what is being asked? - Or are those costs something that he's not happy talking about - Once more for the record, I did not ask an accountant to give me advice on moving the QROPS. I got the advice elsewhere and then asked an accountant to crunch the numbers for me - They were not transparrent - Hence my question here.

I'm going to follow the forum rules and not post people's names or personal details - So I'll refer to our salesman's boss as 'The Master'

It is stated that The Master is not registered with the FSA, futher down in the same post reference to the Credit Suise /Singapore debcale and some reference to litigation.

I'm left wondering why would anyone want to use an unregulated 'agent' in Thailand (even The Master) where there is little or no protection/compensation when fully qualified 'agents' are readily available in the UK and where if a scheme is mis-sold there are real oportunties of compensation?

And I have not yet had an answer to exactly why QROPS are safer than defined benefit schemes - As pointed out by AFKAFSinLOS, UK legislation governening DB Pensions ensures that the investment portfolio [to be correct] is matched to the age profile of the Pension Members - because these schemes tend to have old(ish) membership they invest in safe Bonds.

Yes this reduces the ability to become 'Fully Funded', but as I have explained above - Fully Funded bears no relationship to a pension's ability to fund it's liabilities.

I would also argue that Fully Funded is not always a good thing...... I'll start another thread on that rather than confuse this one (which as I note has not got the response I specifically asked for).

AFKAFSinLOS - There is a 4th income to DB Pension Funds - Company Contributions. More of that when I talk about DB Pension Funds being fully funded and why that is not always a good thing.

Also for the record - I don't necessarily believe QROPS to be a bad thing - I would not have looked into them myself if I thought that - But they are being mis-sold and people are loosing money on them..

'Agents' selling these things are of course very happy - Large pots of money to take a cut on......

[Misty]

I'm going to follow the forum rules and not post people's names or personal details

Good point, GuestHouse. If it's against forum rules and as I can no longer edit my previous post, Mods can you please remove the individual's name and the link in my post #7?

Sorry for the mistake.

Thanks, Misty

[AFKAFSinLOS]

For me QROPs look a great product for a non-resident, who has been so for over five years and wants a lower/no tax environment compared to the UK. That schemes will let you take money at 50 instead of soon to be 55 in UK is also a benefit. That said they are still in their infancy and costs look to high in my view.

[AFKAFSinLOS]

QROPS look a great product to me for someone who is non-UK resident and to move money to a no tax/lower income tax environment, as well as offer flexibility. Taking cash at 50 instead of soon to be 55 will be nice too!

That said they're still in their infancy, and like many packaged offshore products, the biggest downside I see is as ever costs.

I think I'll wait for schemes that offer reasonable charges. I might as well leave it in my Hargreaves Lansdown SIPP which charges no additional fees: no set-up, no annual, no quarterly etc, except what the underlying investments/funds themselves levy. Plus they often discount underlying initial fund charges to near zero... Then switch to a QROP closer to retirement to reduce UK taxes. No point paying all those fees though in the intervening years until then though...that said many UK pensions are equally as bad... If someone comes up with the HL of QROPS let me know...

Following might be of interest. Some good info as well as good links. Including mentioning a Guernsey fund at GBP500, and 0.65% pa, as well as

http://www.premierfinancialsolutions.co.uk...ions/QROPS.html

[GuestHouse]

ow, there are very few remaining DBS schemes allowing new members to enter and many are ring-fencing or withdrawing existing investor rights. This is because of the underfunding issues

No, not because of Underfunding Issues but because as a result of two changes, one legislative and the other relating the current business planning.

Legislation: Recent legislation (Post Maxwell) applied to DB Pension Schemes provides excellent protection to members of DB Pensions - separating the funds from companies (Trust law is used here to great affect) and providing legal obligations on the employers to fund the pension schemes. The impact of that has been to make Pension Funds a Legal Obligation - A Legal Financial Liability to the Company.

Business Practice: Changes in business practice and accounting (particularly profits to share hold focus) have brought about a far more critical view of Financial Liabilities (of which Pension Liabilities are one). - For example, ring-fencing a pension scheme, hence removing growth in the associated liabilities, is an effective way of making the company stock price jump up - and point not missed by many a 'Director on a share deal based rewards package'.

It is a combination of these two factors that has caused companies to Ring Fence DB Pension Schemes (Nothing to do with Underfunding).

---

The UPSIDE.

The upside of this is that people who hold Benefits Rights in Defined Benefit Pension Schemes now have three extra levels of security - Firstly the excellent protections provided by the Pension Laws, secondly the Pension Protection Fund and thirdly because the age profile of these closed schemes is growing older, the Pension Fund is by law placed in more secure investments (Bonds).

Not exciting stuff and not putting £s into these QROPS salesmen's profits but great news for Pensioners/Pension Rights holders who need SECURITY OF BENEFITS.

---

Observation - Companies are no longer being taken over for their pension fund!

Observation - There are no similar protections offered with QROPS

Observation - The Term 'Underfunded' does not mean the pension fund cannot pay its liabilities - far from it and may be a good thing for pension rights holders - More later.

Edited July 22, 2008 by GuestHouse

[AFKAFSinLOS]

Legislation: Recent legislation (Post Maxwell) applied to DB Pension Schemes provides excellent protection to members of DB Pensions - separating the funds from companies (Trust law is used here to great affect) and providing legal obligations on the employers to fund the pension schemes. The impact of that has been to make Pension Funds a Legal Obligation - A Legal Financial Liability to the Company.

The key flaw with this is some companies now and in the future will not be able to afford these financial liabilities. Companies are now realising that pension risk can adversely affect their capital structure, credit rating, M&A activities, share price, profits and cash flow. FRS 17 and IAS 19 accounting changes you refer to have brought some real headaches in many ways. Companies now have more volatility in their numbers. hedging longevity of pension scheme members is extremely difficult. Even breaking down pension risk into constituent risks such as equity, interest rate, inflation, currency etc is a large problem. Worst of all is that most of it is heredeitary, and what has gone before, and they have not set themselves up over the years to deal with it.

There are a large number of UK listed companies where Present Value of benefits owed to members exceeds the companies market cap! That doesn't offer comfort at all to know the legal obligation is there for a company that has limited liability and can't afford it...

DOWNSIDE: If a company can't afford it's financial obligations it can become insolvent. Then you lose your job as well as (part of) your pension...

Hence the trend to stopping Def Benefit schemes. That will also create a future bubble problem, where without new money coming in, investment of underlying funds will need to be restricted...

At the moment your industry Oil and Gas is going thru a good time, and companies are financially strong. I think you draw too many conclusions based on your own industry and circumstances, and pension schemes.

Bear in mind these things also go through cycles. Other sectors are not so fortunate at the moment, who knows what the future holds?

[GuestHouse]

Legislation: Recent legislation (Post Maxwell) applied to DB Pension Schemes provides excellent protection to members of DB Pensions - separating the funds from companies (Trust law is used here to great affect) and providing legal obligations on the employers to fund the pension schemes. The impact of that has been to make Pension Funds a Legal Obligation - A Legal Financial Liability to the Company.

The key flaw with this is some companies now and in the future will not be able to afford these financial liabilities. Companies are now realising that pension risk can adversely affect their capital structure, credit rating, M&A activities, share price, profits and cash flow. FRS 17 and IAS 19 accounting changes you refer to have brought some real headaches in many ways. Companies now have more volatility in their numbers. hedging longevity of pension scheme members is extremely difficult. Even breaking down pension risk into constituent risks such as equity, interest rate, inflation, currency etc is a large problem. Worst of all is that most of it is heredeitary, and what has gone before, and they have not set themselves up over the years to deal with it.

There are a large number of UK listed companies where Present Value of benefits owed to members exceeds the companies market cap! That doesn't offer comfort at all to know the legal obligation is there for a company that has limited liability and can't afford it...

DOWNSIDE: If a company can't afford it's financial obligations it can become insolvent. Then you lose your job as well as (part of) your pension...

Hence the trend to stopping Def Benefit schemes. That will also create a future bubble problem, where without new money coming in, investment of underlying funds will need to be restricted...

At the moment your industry Oil and Gas is going thru a good time, and companies are financially strong. I think you draw too many conclusions based on your own industry and circumstances, and pension schemes.

Bear in mind these things also go through cycles. Other sectors are not so fortunate at the moment, who knows what the future holds?

I don't disagree that the legislation places the burden on the companies in a way that will cause companies to close pension schemes - in fact I agree entirly.

But don't get confused about what 'Funding Level' is and exactly what it means and please do not forget the Pension Protection Fund (you don't get that with your QROPS)

[AFKAFSinLOS]

[

I don't disagree that the legislation places the burden on the companies in a way that will cause companies to close pension schemes - in fact I agree entirly.

But don't get confused about what 'Funding Level' is and exactly what it means ...

No confusion at all...

No confusion either on the adverse impact it can have on companies and their solvencies when they can't meet their pension obligations and liabilities placed on balance sheet under new more stringent rules...

These issues are not limited to UK either. United Airlines raised some serious questions, in the way it filed for Chapter 11, then later re-emerged from Chapter 11, minus its def ben plans and obligations...

This was an interesting link a while back on bulk buy-outs. While a slightly different topic, it highlights in the middle one of the key drivers of the bulk buy-out market

http://www.the-actuary.org.uk/790546

"this was a business opportunity created out of the failure of company-maintained DB pension schemes in the UK to meet their employees' pension liabilities"

Again you're in a nice sector in Oil & Gas. There general pension industry of even FTSE 100 companies is not always so well placed...

Edited July 22, 2008 by AFKAFSinLOS

[GuestHouse]

To be fare AFKAFSinLOS, I'm currently in the O&G Business but have not always been on the O&G Business hence the spread of DB Pensions I hold are not all O&G - But let's not ask about my personal circumstances in order that we can avoid pointing the finger and saying 'you always want to talk about yourself'.

Better still, let's stick to the original quesiton (Still no takers on that) and if we can't actually find anyone who has moved over to QROPS from a defined benefit scheme this year, let's see if we can get our salesman to answer the question I asked, and he missed, above - Why on earth would anyone use an un regulated, uncertified Agent in Thailand (where there are little if any protections to the investor), when he might easily use a regulated, certified Agent in the UK and in doing so benefit from the raft of laws protecting investors against mis-selling of financial products?

----

Knowhere does our Salesmen mention the real risks to QROPS - OK we get some comment about QROPS funds being mostly held in Trusts - Well so are pensions and we get some talk about Guaranteed returns (yikes!). We have the comment that the compensation from the Pension Protection Fund would be less than the Pension Fund Holder would expect (not proven without demonstrating what is expected) and in anycase 'Compensation is better than No Compensation'.

Also not metioned are the real and significant penalties if a QROPS Provide/Investor Breaks the rules (back to regulation) NOR are the penalties for returning to the UK mentioned, if for example the QROPS investor finds that life overseas is not what it is cracked up to be.

What we do have is a push on the tangible benefits of QROPS (and I say they are, if understood and correctly managed Benefits that are valuable for some people) with scant if any mention of the risk. (Unless of course we are gleefully referring to the risks of DB Pension Fund Failure back home - but that looks suspiciously like just another sales spin for QROPS).

The Risk - to remind ourselves is the loss, or subtantial loss of Pensions - by definition benefits/money that few can afford to loose

A point that was made is the inteligence of the investor - Well yes... and no. I'm not convinced myself - How many guys in Thailand I wonder see these claims of the Cash Benefits (Easy money now) as a way to get over the difficulties they face today, rather than keeping an eye on their long term finacial security.

How may foreign men in Thailand are making a rake of mistakes to which this is only one more - but the life raft to hang on to in the hope that things are going to get better.

I wonder too when I read that our salesmen transfers funds of as little as GBP50K - Now I'm not belittling GBP50, it might be a guys life savings and if it is far better GBP50K than GBP Zilch - But this is a figure way way below the minumum transfer fund that I was advised (albeit by a Qualified, Certified and Regulated Finacial Advisor Specializing in Expatriate Finacial Services ...... Oh he was in the UK - Hence the Quals/Certs/Regulation and.... financial services laws!)

To tell you the truth, I actually like AFKAFSinLOS's advice on SIPPs - If your not happy/Uncomfortable with your DB Pension then SIPPs seem a very acceptable alternative (Without the risks and Charges of QROPS) - Remember please, returning to the UK is a significant risk for QROPS.

I think moving a DB Pension to a SIPP while the QROPS market matures (and costs come down) AND TOO while the expat finds his feet in Thailand and determines that he actually wants to spend the rest of his life there, is all excellent advice.

My overriding concern remains the mis-selling of QROPS and nothing I have read here convinces me otherwise - Even the claim that the Only Vested Interest our Salesman has is that the Investor gets the right product didn't convince me.

[GuestHouse]

AFKAFSinLOS, I think the link you provided on Insurance Companies/Banks etc buying into the DB Pension Fund demonstrates very well why we must not misunderstand the term 'Fully Funded' with respect to Pensions.

It is the gap between the Fund required to cover the Benefits (liabilities) and the Fund Required to Buy those Benefits on the Open Market that makes for a good buy if you are a Insurance Company/Bank.

That the Pension Protection Fund requires a 125% funded Pension a high risk says nothing about the Pension Funds themselves and everthing about the Government's aversion to taking on any pension risks.

What us the Pension Protection Fund for a QROPS?

[AFKAFSinLOS]

Speaking of pension deficits...

UK Govt public sector pension deficit estimated at GBP 1,000,000,000,000. All to be paid out of future government receipts. It certainly makes you think again about government backing, guarantees and support in case things go wrong.

If they can so severaely mismanage their own schemes and liabilities, it doesn't exactly inspire confidence in them managing the sharks in the private sector...

[Maestro]

Several spam posts (company name in user name, etc) and replies thereto have been deleted. This may now have disrupted the thread somewhat but the deletions were necessary. My apologies to all those who posted interesting comments but now find their posts deleted because they were in reply to a spam post.

[JMS]

As my previous post was deleted I will repeat it without mention to the said company. Paul stated his company were not selling this product, but after challenging him with names in a pm he then came out and said they have done 5. So Paul are you now using a HK company, now that the Singapore one has been closed and how much commision do you receive from these schemes. The only benefit that I see from someone transfering into these schemes is the money you and the company receive in commision

[ISO]

As my previous post was deleted I will repeat it without mention to the said company. Paul stated his company were not selling this product, but after challenging him with names in a pm he then came out and said they have done 5. So Paul are you now using a HK company, now that the Singapore one has been closed and how much commision do you receive from these schemes. The only benefit that I see from someone transfering into these schemes is the money you and the company receive in commision

I want to stop experiencing Financial Advisors that can't lose as they get paid regardless of whether or not they win for you or lose

your money. <a name="OLE_LINK7">1. They talk you into giving them control of your money.

2. They gamble with your money in their favourite product.

3. They make a gain for you and they take an Adviser fee plus a cut of the total amount you have invested, plus a trailing commission from the product manager.

4. Or, they make a loss and they take an Adviser fee plus a cut of the total amount you have invested, plus a trailing commission from the product manager.

It's all quite simple really:

1. You take all the risk and risk losing all your money.

2. They can't lose as they get paid regardless of whether or not they win for you or lose all your money.

[ImmortalRich]

QROPS have been mis-sold by some IFA's particularly in Singapore and HK who don't know what they are doing. The main advantage of QROPS is to avoid inheritance tax. If you die under a UK scheme, your spouse has to pay a 55% death tax. Under a QROPS, the whole lot gets passed on to the family. Also, under the Isle of Man 50c rules, you can now access 30% as a lump sum plus 100% of any increase in the value of the pension pot after transfer. This means that if you have a large pension pot, you can take the increase and invest in property if desired. QROPS aren't for everyone and if you have a particularly good defined benefit pension scheme, have no spouse or family members to pass your pension on to and are risk averse, you may be better off in your UK final salary scheme. But, you can invest in 100% capital protection products or bonds through a QROPS if you are low risk and you get all the tax benefits. It is important to get the right QROPS to suit your needs. It is best to consult QROPS specialists who have experience in finding the lowest fees and appropriate jurisdiction for your pension.

Edited September 2, 2011 by ImmortalRich