Find Out Why An Expat Would Want To Transfer a UK Pension To a QROPS...
Every year more and more British subjects are making the life changing decision to emigrate from the UK to sunnier climes, more often than not they have built up a UK pension, for these people it is often advisable to transfer their pension into a Qualifying Recognised Overseas Pension Scheme or QROPS for short. There are many reasons for doing so from tax to currency advantages and offers a true benefit rather than just leaving your pension back in the UK.
A pension is often misunderstood it is actually just a wrapper or container that holds other investment mediums such as unit trusts. The sum of the pension is invested with the hope that its overall value will increase.
There is often a limited choice for UK private pensions on where and what funds are available for them to invest in.
Pension holders are often restricted within their choice of investments as the insurance companies only allow them to invest in their own funds and products. This limitation clearly can have a deep impact on the funds overall performance and returns. By being able to choose from the whole market via a QROPS you are giving yourself a much better chance to substantially improve your investment performance, the size of your pension pot, and in turn the income that you receive in retirement.
As you can see already getting the right QROPS advice is crucial.
Here follows an example:-
A return of 109% was achieved through a three year period to 7-11-2011 by the top 10 Funds! 17.87% average was the figure produced by the bottom 10 through the same date range.
Source: Investment Managers Association UK All Companies from 156 funds.
Clearly it's impossible to see which funds will outperform their peers over the coming years. That being said certain funds do outperform the market within certain sectors on a consistent basis i.e. ABC org may excel in a particular market and deliver consistent gains to the funds as well as be in the top 10. However they may very well not produce such stellar results in other sectors such as UK equities etc.
Diversification of funds not only reduces the risk exposed to but also gives a smoother return. Mixing the types of investments that your pesion is invested in is highly advisable i.e. real estate, gold, bonds and of course cash.
The fact that for a QROPS you can select which fund manager to use with a record of outperforming the markets that they work within - for example. taking the above UK shares for an example significant gains can be achieved over other poorer performing funds in the same market and lessen the risk that you're exposed to. A true win for the investor using a QROPS pension!
Greater credit should be handed to the managers that out perform their peer groups by simply taking on board less risk whilst still maintaining consistently high returns within the same markets, this is often neglected when assessing funds.
This is commonly referred to as delivering superior risk adjusted returns; brought about by the experience and expertise of the fund managers and their team.
A major advantage of QROPS therefore is the ability to choose where to invest. This can turn into a much more valuable pension pot giving you more money to live on.
QROPS as you can see has many advantages and I'll cover these in other articles.
