Best QROPS: How to Build a Cheap Offshore DIY Pension Scheme
How to find and build the Best QROPS pension scheme – If you want to unlock your pension abroad and want to take control of your own retirement planning with a low cost DIY pension scheme, then a Recognised Overseas Pension Scheme (ROPS), formerly known as QROPS may be for you.
Whilst more restrictive that a UK SIPP, as the trustees need to sign off on every buy / sell order which restricts you to buy & hold investing or rebalancing once per year, there are tax advantages to holding a ROPS abroad.
If you move your UK pension to a ROPS in Hong Kong for instance, depending on the country you choose to retire in, you may pay very low income tax and sometimes none at all.
Have a look here for retirement destinations with low income taxes.
The Best & Cheapest QROPS – Offshore Low Cost DIY Pensions
Which are the best & cheapest QROPS?
QROPS used to be very expensive when first launched in 2006, with prices coming down from 4,000 GBP per year to 2,000 GBP in the first couple of years.
Now, they have fallen down to below 1,000 GBP per year to set up.
Depending on the case size, smaller cases are now comparable to UK SIPP fees.
DIY Pension Benefits & Features of QROPS
- Full pension drawdown on DIY QROPS are only allowed in Malta (9th Feb, 2016) so far
- Tax will depend on your country of retirement and the DTA it has with your QROPS jurisdiction
- All QROPS must be signed off by trustees, so control is less than a SIPP
- However, you can choose what you invest in
- You can choose the currency of the investments
- You can choose to rebalance once per year
- You can choose to go to cash if necessary and hold gold or treasuries as a hedge
- A QROPS can lower income taxes and reduce death taxes to zero
- A QROPS can be passed on as a cash lump sum pension pot to beneficiaries
- Beneficiaries of your QROPS can be named and changed whenever you like
- A QROPS is a pension trust, so immune to bankruptcy, litigation, most court cases, etc
DIY Pensions – Is a DIY QROPS a Good Idea?
Taking control of your pension may seem like a great idea at first, but considering that less than 20% of money managers beat the index every year and over a long period of time, this falls to almost nil, what chance do you really think you have of investing it and beating professionals who spend millions on meteorologists, teams of coders, algorithms, rocket scientists, etc?
The best way is to actually pick the indices themselves and then diversify across a range of ETF’s to lower risk through diversification.
Here is an example of a balanced portfolio:
The IVY League Balanced Portfolio Pension Plan in GBP
IVY League Portfolio in GBP (balanced)
5% FTSE 100 (ISF ETF)
15% FTSE 250 (MIDD ETF)
5% MSCI Emerging Market Equity (IEEM ETF)
15% FTSE Developed World ex-UK (IWXU ETF)
20% FTSE EPRA/NAREIT UK Property (IUKP ETF)
15% FTSE UK All Stocks Gilt (IGLT ETF)
15% £ Index-Linked Gilts (INXG ETF)
The “Ivy League” or “Red Brick” University portfolio was created by David Swenson, the Chief Investment Officer (CIO) at Yale University.
It looks to diversify by holing a mix of low risk gilts, property, UK equities and worldwide equities. You could just tweak the percentages depending in the interest rate environment and whether stocks are over or under valued or you can just set this up as a “set and forget” portfolio for the next 10 years. I would be tempted to do the latter as most pensions have at least a 10 year outlook from now.
The different ETFs will be up and down over each year, but over 10 years should balance out. There could always be some or all ETF’s losing in each year, but the idea is “time in the market” not “timing the market” and over 10 years, these ETF’s should all be up.
DIY Retirement Goal Planning
You need to be mindful of when you want to retire and how long your pension pot can last you. There are all sorts of retirement calculators for free on the internet, where you can work out when you want to retire and how long your pension pot should last you.
Remember, as technology gets better, we live longer, but not necessarily live longer in a healthy state. Many people over 65 live with a long term illness which means you cannot work.
How to Start a DIY QROPS
First you need to discuss with your financial adviser where you want to retire abroad.
Then, your financial adviser will look at the various tax treaties and recommend the best destination for your QROPS for tax efficiency.
You then choose the investments you like by informing your adviser of a pre-designed portfolio or ask your financial advisers for recommendations. We recommend index funds as they carry a lower risk and lower fees over a lifetime.
Then, you can start the QROPS paperwork.
Your financial adviser will have to fill out all the paperwork on your behalf as there are over 40 pages. This is then sent to your present pension providers along with a letter of authority to allow transfer. Your current company may take up to 3 months to allow the transfer to take place.
Once transferred, the trust then invests the money on your behalf and you can rebalance once per year as you or your adviser sees fit.
A QROPS is always a transfer from existing pension schemes, it is never new money.
You can then top up your QROPS if you wish, but any new monies would then fall under QROPS pension rules.
Tax is either deducted at source or you pay it in your country of retirement depending on the Double Taxation Treaties which are in force at the time retirement benefits are taken.Best QROPS: Build a Low Cost Offshore DIY Pension Scheme by Richard Malpass