Match of the Day: QROPS versus SIPP

Expats holding British pensions face a big decision regarding whether they invest their money in a QROPS or SIPP. A reader recently wrote to us for advice and we consulted 3 independent financial advisors. Here is their advice, followed by our reader’s reply.


I am being advised that QROPS win hands down against a SIPP, however I only have  GBP 50,000 to transfer and the costs seem quite high and I would need to make very good returns to cover those costs.

I am 49 and anticipate contributing to a SIPP for c. 15 - 16 years and believe that as an expat f some 15 years I already could transfer into a QROPS at some future time and still have the benefits at retirement that a QROPS will provide.
The only real question now would be any difference if I were to die prematurely, would I be better with a QROPS or a SIPP to leave my pension to my spouse and children? I have two children by a former wife, they are now aged 20 and 21, and I have one child aged 14 months by my partner.

►  Advisor #1:

The huge factor for someone transferring to a QROP with levels of 50k is the cost of the vehicle, both the set up and the on-going costs. At that level the return would have to be significant to achieve better than what it costs you just to hold it. Any tax benefit is going to be negligible compared to the cost of the maintaining the fees.

For larger amounts the cost becomes less significant but there are no tax advantages of a QROP over a SIPP until you start to take the benefits. If you are going to continue to fund this pension fund then a QROPS would not have the same lifetime allowance issues but even then, to have that problem, the pension is going have to be to be worth at least 1.65m. 

The caveat to why someone may want a QROPS rather than a SIPP is the uncertainly that the UK government may impose a transfer tax on moving the funds to an overseas jurisdiction. This argument is further eroded if the QROPS is situated in the EU as it will come under the EU directive on freedom of capital movement. Although some people just like to have their funds out of the UK.
At the moment, when you reach retirement age and start to take your benefits, then a QROPS is certainly better than a SIPP – no IHT and income paid gross rather net of tax. But until the cost comes down to SIPP levels a QROPS will not be the best choice for the majority of expats.

One further note, if a QROPS provider or adviser indicates that the pension can be taken out as 100% cash then I would be very wary. Whilst they may do it a couple of times, if the HMRC finds out then, then they will remove the QROPS from the list, impose a tax on the scheme (including remaining members) and take legal action on the those members that have taken the cash. Not a scenario that any expat pensioner would wish.

►  Advisor #2:

There is no difference on the death benefits between a SIPP and a QROP if you were to die before the benefits have been taken. The fund would revert to the named beneficiaries, whoever you have chosen.

One of the advantages of a QROP is that the investments grow tax free, so it is not a good idea to keep the SIPP and transfer to a QROP at a later date as you lose that advantage.

Also with a QROP you have the advantage of investing in a wider choice of funds to get better returns, so the earlier you buy into a QROP the better. Left in UK the SIPP is liable to huge tax charges on the death of the member which can be prevented with a QROP.

There can be many other benefits in moving a SIPP to a QROP but it depends on the costs of the scheme, who will be looking after the QROP  i.e. which jurisdiction, and where will the member be living when he draws down on the pension.  You can advise him that there are low cost options  (a few hundred pounds) for  lower value QROPS which might resolve any of the cost issues,  but this depends where he is living as these options are not available worldwide .  They are available for example in Africa.

►  Advisor #3:

SIPP is no good from an estate planning point of view whilst QROPS may provide such an opportunity depending on the local law. If he is in Australia, then QROPs will be recommended for estate planning. 

In terms of the cost, we can deliver the transfer by managing administrative side only so it will be cost efficient that way.

Our reader replies:

It seems that the first 'independent answer' is the clearest and I think it is significant that the companies providing QROPS still try to find the benefits, while ignoring the annual costs. I have opened a SIPP with AJBell and so long as they meet their promise of no transfer in charges nor annual management charges, then I am immediately more than 1000 GBP or 5% pa better off. I think the conclusion is clear that the tax benefits may be better if dividends are paid on investments, however not so many shares pay such good dividends that it will amount to more than an average of 5%, which in any case would only cover costs.
My take on it is that I can invest in a SIPP and at any time in the future I can transfer to a QROPS  to overcome the annuity/death benefit problem. If I die before 75 I don't have a problem ... and statistically there is more chance of me not having the problem than having it. So the only real problem I see is remembering before my 75th birthday that I need to transfer to a QROPS, and as I get older and more decrepit that problem will get bigger and bigger!!

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