When is an SIPP not a SIPP ? – The International SIPP and Offshore SIPP explained
The term SIPP has become synonymous with a UK pension in “offshore speak”, but when is a SIPP not a SIPP and does the term “ International SIPP ” suggest legal approval or regulation outside the UK?
When you buy a watch from Rolex in Switzerland you know what you get. When you buy a fake watch from Vietnam with the name “Rolex” on it, what do you get?
A quick history leading up to International SIPPs
First we had QROPS, which then often become abbreviated to ROPS (indeed one person once corrected a blog of ours to suggest that a ROPS was different from a QROPS – the term is interchangeable and the rules identical), and throughout this period we had UFURBS and then QNUPS. Most websites focus on the term QROPS, comparing them to SIPPs and explaining the benefit of one versus the other. They exclude other options, as these other options are often not available to unregulated advisers outside of the UK.
Now we have the name SIPP applied by companies such as London & Colonial out of Gibraltar calling their QNUPS products an “EU SIPP” or “Multi-platform SIPP”. They also have a SIPP in the UK it should be noted. However, London & Colonial are not alone as other companies offer “International SIPPs” or “Offshore SIPPs”.
Let us ignore London & Colonial for the purposes of this discussion and focus on these “International SIPPs” outside the UK which are often meaningless names, being nothing more than a marketing term, like picking up a fake watch from Hong Kong with “Breitling” written on it. For onlookers it may appear you have a lovely rose gold watch made in Switzerland, but in reality you have a poorly made alternative.
And therein lies the problem, as good regulation or high consumer awareness in financial services, prevents excessive charging; the highly regulated “real products” in the UK can be the less-expensive best option. Offshore, the less regulated product is often more expensive, simply trading on the marketing name and adding “flexibility”, making it a triumph of marketing over substance.
This is not a unique occurrence, and well known regulated terms become unregulated marketing terms overseas:
• Offshore advisers claiming to be Independent Financial Advisers, but who are nothing of the kind and not UK regulated, or
• Pension transfer specialists who have no UK qualifications and have little knowledge, or
• Transparent fee based advisers offshore who actually are not, passing commissions through secondary offshore companies in other countries which don’t get declared.
When comparing a simple Scottish Widows personal pension against an International SIPP from Gibraltar or Malta, the International SIPP is 3 or 4 times more expensive than the UK pension, lacks the same regulatory protections and its characteristics are entirely different from a true UK SIPP.
UK SIPP explained
You see a SIPP (Self-Invested Personal Pension) is a UK pension with UK protections which is legislated under UK law and rules of trusteeship. They are personal pensions that offer additional and flexible investment strategies, as well the possibility for business owners and families to use them as strategic vehicles for business property. A UK SIPP is often MORE expensive than a personal pension in the UK; so if people do not want the additional investment flexibility of a SIPP, then in the UK they are recommended another cheaper form of UK pension, often known as a personal pension.
An “offshore SIPP” or “EU SIPP” is far more expensive than most UK pensions, offers no more flexibility, less future transferability, and is without the protections afforded UK pensions. Indeed, most international SIPPs cannot even be funded in the same way as a UK SIPP and some cannot even accept UK pension transfers- as they do not all qualify.
So, when a SIPP is not a SIPP, should the term International SIPP even be used?
I am firmly convinced that a SIPP is very much a UK based regulated product, to be recommended with clear and transparent fees, then compared against other options such as other UK pensions and QROPS (advantages and disadvantages linked to each client) consistent with the best practices of RDR.
What has become clear through the use of the term SIPP offshore, and being marketed generically, is that “International SIPPs” are being offered for sale by non-UK regulated advisers, often in places with low regulation. Advisers here are also still seeking soft commissions (extra payments that clients are often unaware of). We have also seen them being recommended to clients in places like Dubai, where they simply offer no advantage whatsoever over traditional pensions which cost a lot less.
The International SIPP, that we have seen recommended, is sold with an expensive offshore bond as the investment wrapper, rather than a competitive platform, for tax or protection reasons; again this is complete nonsense in most cases.
Where “Offshore SIPPS” or International SIPP are actually QNUPS – what does this mean?
A QNUPS can be utilised by the wealthy who have fully funded pensions or are unable to receive UK pension tax relief for large contributions. A QNUPS has no tax relief on contributions, but essentially follows old style access rules of pensions.
Can we think of any reason to use a QNUPS for alternative pension funding where traditional pension funding is still available?
Is there any tax benefit of the QNUPS on entry?
Investment in QNUPS
QNUPS allow greater use of non-standard investments, but that includes the expensive commission laden insurance bonds and structured products that offer high returns and high risk (the latter is not normally explained).
Can anyone give advice on QNUPS?
Pretty much anyone, yes. Your hairdresser would be able to recommend one in most countries. Your father-in-law or mother-in-law, yes. Your friend of a friend who once spent time in jail for fraud, yes.
I think you get the picture, in most countries in the world there are absolutely no rules about the provision of trust advice linked to QNUPS, as they are largely poorly-regulated or unregulated products. Even more worrying is the fact that most people advising on them have no professional qualifications or investment licences.
What could possibly go wrong?
Well, reputational damage to the SIPP market which then damages, vicariously and unfairly, the pension market as a whole. Should many people be considering an International SIPP or QNUPS?
We offer a forensic review of the 10 reasons to use a QROPS for those that would like revisit the QROPS and investments they hold. Increased investment performance and lower charges may make a significant difference at retirement.
Some offshore salesmen promoting QROPS as an investment solution live in a parallel universe where they claim to make world stock markets behave differently in QROPS than they do if the same funds are used from and within UK pension funds. Think and behave logically, if promises of bigger returns can only be achieved by moving to a QROPS then why hasn’t the entire UK pension industry moved offshore? It hasn’t!
End of article:The International SIPP and Offshore SIPP explained
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 25th July 2017
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