They’re supposed to be your Golden Years. You work hard for decades, pay your taxes, save. You do all the right things to ensure in retirement you can spend time with those you love, doing what you love.
But, all too often, doing all the right things isn’t enough. What happens in the last few years leading to retirement could make all your plans come to a grinding halt, especially if you live, or are planning to move, abroad.
Sadly, there is a worryingly large number of people who claim to have your best interests at heart, but are in fact just trying to get their grasping hands on your cash.
I’m talking about unscrupulous offshore salesmen – and the tricks they regularly use to take away everything you have in a flash of big smiles and empty promises, so they can enjoy their life with your money.
Trick #1 – Transfer into an offshore investment bond
One of the most costly and common recommendations offshore salesmen make is to transfer your pension into an offshore investment bond.
The adviser is likely to tell you that by doing this you’ll have more control over your money and will be able to invest it more freely. They may even say there are tax benefits because these schemes are based in lower tax jurisdictions such as the Isle of Man or Ireland.
In reality, moving your pension into an offshore investment bond without fully understanding how these often opaque investment platforms are commonly used could cost you serious money in hidden commissions and charges. Wrongly used, these vehicles will erode your pension and fill your adviser’s back pocket.
Offshore investment bonds can be a helpful saving tool if you are based in a high tax jurisdiction, but, dependent on the manner in which your adviser uses them, may make no sense as a place to put your pension savings as they will most likely restrict access and will potentially have heavy charges. The only reason many international advisers want you to transfer your money is because they make tens of thousands of pounds in commission. That’s your pension money being paid to them.
Trick #2 – Transferring your money just to get a hefty commission
There are plenty of good reasons why you may want to transfer your pension. If you’re planning to retire abroad, it could make financial sense to take your pension out of the UK and use an overseas pension arrangement called a Qualifying Recognised Overseas Pension Scheme – a “QROPS”.
However, there are many salesmen who do not fully understand the implications of moving your pension overseas, whether that is the tax implications or even simply the benefits you will lose or gain.
By transferring your pension, regardless of whether this is the right decision for you, the salesman can make a seriously big commission. This is your pension money going into his pocket.
What’s more, many overseas advisers are simply not qualified to give you advice on your UK pension. The UK’s financial regulator, the Financial Conduct Authority, recognises this and now only those authorised to do so can offer transfer advice on UK pensions – you can check our authorisation and what it looks like here.
You wouldn’t use an unqualified doctor, dentist or even car mechanic, so why risk your financial future on an unqualified or unlicensed adviser? An inappropriate transfer could seriously damage your financial wealth. Make sure your adviser is qualified and their firm regulated, before taking any advice.
Trick #3 – Toxic investments paying high commissions
Another reason offshore salesmen may be keen to transfer your pension into an opaque offshore investment vehicle or another pension scheme, is so that they can fill your pension portfolio with toxic investments that pay lots of commission.
The last thing you want to do with your pension as you approach retirement is put it into high-risk investments which could potentially lose you all of your money.
Of course the silver-tongued salesman isn’t going to tell you that. They want you to invest in funds which will pay lots of juicy commission. They’re more likely to talk about “guaranteed returns” and “safe bets”. And once you have made the investment and it has gone wrong, the likelihood is they will be nowhere to be found as, once they’ve cashed in the initial commission cheque, you’re of no interest to them – you’re just the mug.
Just remember to ask yourself “what is this offshore salesman getting out of me making this investment? Why is he so keen?”. Remember the old adage: if it looks too good to be true, it probably is.
Editor's Note: This post was originally published in April 2015 and has been updated.