Do you have a QROPS in Malta?
For some time Malta has been a preferred jurisdiction for those wanting to take advantage of the considerable financial benefits of transferring their UK pensions outside of the UK, even for those who remain UK tax resident Malta can offer tax advantages in respect of the Lifetime Allowance.
On 1 January 2019, the Malta Financial Services Authority (MFSA) introduced new, tougher pension rules that could have a significant impact on your pension.
What are the new rules? …
We welcome the new rules, which are designed to give further protection to you as a pension scheme member by ensuring that you can only receive investment advice from Investment Advisers fully authorised to do so.
Under the new rules, it is no longer sufficient for an Investment Adviser to simply be licensed. There is now a requirement for an Investment Adviser to be fully authorised to provide investment advice to pension scheme members under the EU’s second Markets in Financial Instruments Directive (MiFID II). MiFID is the framework of EU legislation which was introduced in January 2018 to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection. Advisers must now be regulated in the jurisdiction where their client is based. A six month grace period was given before Malta Pension Trustees were forced to remove any Investment Adviser not holding the appropriate authority.
Some Trustees have suggested that scheme members use their ‘chosen’ Discretionary Investment Manager (DIM) to run the QROPS investment strategy moving forward. The DIM will make an initial assessment of your current portfolio and recommend suitable investments.
This is where it gets complicated, because depending on the strategy employed by the company, the investment strategy may be linked to your age, using Target Date Funds on the basis that this ‘minimises the need for complex risk profiling’ according to some pension trustees, who suggest that a target date approach to pension investment is becoming the norm. THIS IS NOT THE CASE! Pension Trustees are NOT investment experts; their role and responsibility does not include providing investment advice in connection with your pension fund, and whilst they may be able to offer suggestions, they are not authorised or qualified to provide investment advice.
What are Target Date Funds?
The investment fund chosen aligns with your intended retirement date. So, for instance, if you intend to retire in 2035, the ‘2035 target date fund’ will be chosen. A target date fund invests in riskier growth assets initially, with the investments being moved into less volatile assets as the target retirement year approaches. The assumption is that you will use your pension fund to purchase an annuity after taking the full Pension Commencement Lump Sum. The result is that the investment mix at your selected retirement age is typically 75% fixed interest and 25% cash, with no equity content.
So what’s the problem?
This approach can be useful if you are working towards a specific retirement date, or where you do not want to receive any ongoing advice and reviews of your pension between now and retirement.
Also, the reality is not many people know exactly what age/date they will be able to retire and in the 33 years in this industry I have yet to come across a client who does not want their pension to be reviewed regularly!
There are other issues with this approach …
Switching to fixed interest and cash can start between five and ten years before your ‘target date’, which can lead to a loss of potential investment growth.
It works on the basis that you will take the full Pension Commencement Lump Sum and buy an annuity at your selected retirement date. This is now an outdated assumption following the introduction of pension flexibility.
Annuity purchase is at an all time low, not least due to the deemed poor value for money and lack of flexibility offered.
If you retire later than originally planned or opt to take flexi-access drawdown, too much of your pension fund will be in fixed interest/cash and growth opportunities will have been lost.
Your attitude to risk may change over time, resulting in the investment strategy no longer matching your view on the level of risk you are comfortable with in respect of your pension.
To use the old Yorkshire Dialect ‘you don’t get owt for nowt’ is very true, as this investment solution can typically cost between 0.5% and 1.2% pa in addition to any other costs.
So what are my Options?
You are not compelled to follow this route and can appoint your own Investment Adviser who is regulated to advise you and who is acceptable to your Pension Trustee. Equally the arrangement with any ‘default’ Investment Adviser can be terminated by you at any time, by the appointment of another Adviser.
Time is of the essence to ensure that you are not ‘shoe horned’ into a solution that does not fit your personal circumstances. Failure to take action could mean you are unable to receive advice on your pension, no changes can be made to your investments or you are left in a position where your pension fund is not reviewed.
I would like to stress the importance of taking specialist advice so that you can establish the full implications of the new rules on your pension.
Have you been affected?
If you would like assistance from us contact firstname.lastname@example.org
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your pension planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, and a qualified Pension Specialist among other areas, including Taxation and Trusts. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
The contents published are not recommendations or decision aids for your investment decisions and they do not constitute any type of advice. We are not tax advisers and independent tax advice should always be sought.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
29 November 2019