Can I transfer my UK pension to New Zealand for free?
Keeping the venerable Messers Ruskin and Friedman in mind, the short answer is yes – but this needs careful scrutiny and explanation.
Absolutely, you can look at transferring your UK pension into a New Zealand QROPS (Qualifying Recognised Overseas Pensions Scheme) with a company that does not charge an initial transfer fee. However, this proverbial free lunch could leave you with lingering indigestion if the ongoing investment management fees tick along at a higher rate than with other providers. Moreover, your choice of how those funds are invested could be limited, especially if the transferring company operates its own QROPS.
How do I compare pension transfers: entry fee plus ongoing fees versus no entry fee plus ongoing fees?
To try and put this into context, we’ve put together some hypothetical figures. Although these are not meant to represent nor promote any provider in particular, they are realistic within the current pension transfers market.
We’ve worked on a transfer value of £250,000 being invested in comparable QROPS products and investment portfolios with an assumed growth rate of 3% pa.
No New Zealand QROPS providers charge an entry fee to invest in their product, but this is where any similarities stop.
Product Provider A does not deal directly with the public as it has no advisers of its own, meaning its QROPS can only be accessed via Financial Advisers, who typically might charge a 2.95% initial advice fee. The ongoing annual fees total 1.04%.
Product Provider B also offers its QROPS via advisers but will also deal directly with the public, charging no initial fee. Ongoing annual fees total 1.68%.
Fees are calculated at the end of each year once the 3% return has been added to the investment amount.
For the first four years, the resulting fund values of investment in the QROPS from Product Provider B are greater. However, after this, assuming all other things are equal, that scheme’s higher ongoing fees nibble away at the invested monies so that resulting fund values end up being less than if they had been invested in the QROPS from Product Provider A.
(To reiterate, although it’s quite feasible that this example could exist in the real world, it is just a hypothetical scenario to illustrate the point of this blog post. You should not regard it as financial advice nor rely on it in your decision-making.)
What should I consider before committing to a UK to NZ pension transfer?
Saying that the decision to transfer your UK pension is complex is obviously a gross understatement!
Therefore, rather than having to settle for one “dish of the day”, we encourage anyone looking at a pension transfer to think about this process more like a smörgåsbord, where you can see everything laid out in front of you, enabling you to make a genuinely informed choice.
For example, would a move to a UK SIPP (self-invested personal pension) be more appropriate? Is it actually preferable for you to leave your money where it is in the UK? And yes, in some cases, the “free transfer” option might be appealing if you want to make an immediate saving, are looking at a shorter investment period before being able /wishing to withdraw the funds, or aren’t so worried about higher ongoing costs and a potentially lower final amount.
What’s important is not to rush the decision until you understand all the factors and their potential repercussions.