Transfer to a SIPP or stay put
noalibi
Posts: 21 Forumite
I met recently met with a pension specialist (an IFA) who is an employee of a company that provides independent financial advice and discretionary investment management services. I understand this to mean that he receives a salary rather than commission on the products they sell.
I am 49 and have a small number of pension pots totalling about £750K - all of which are DC. My current employers scheme accounts for £300K of this and I have been advised to leave this alone due to the employer’s contribution.
The remaining £450K is split between three schemes that invest in standard funds with varying AMC of between 0.25% and 0.75%. He has proposed transferring these to a SIPP as this would be actively managed as opposed to simply relying on the performance of funds. There would be an initial charge of about £6,000 and a subsequent AMC (including VAT) of 1.8%.
At first glance, staying put seems like a no-brainer - but I would like some other opinions. In addition to the actively managed funds, I would also get investment planning advise, discretionary portfolio management, and regular ongoing reviews. I would also benefit from lower transfer fees (0.5% + VAT) for subsequent transfers into the scheme, i.e. when I finally leave my existing employer. These same lower fees would also apply should I transfer my wife’s pension pot (currently £600K) into the same scheme (i.e. the same logical pot when it comes to fees, but still two independent pension pots).
As I see it, I have three options …
1. Do it now - in theory it will be cheaper (as doing it later with a larger pot will incur a larger transfer in fee) and would start to benefit from the active day-to-day management
2. Do it later - benefit from the lower charges of my existing funds, but incur a larger transfer fee later on.
3. Do something much later - I understand that my current providers don’t provide a drawdown facility, therefore I will have to do something at some point when I want to start access my various pots, so should I do it earlier?
I am a little sceptical of the recommendation and also very conscious that once I transfer in, I cannot go back (okay, I know I can transfer to another SIPP provider - but will incur similar transfer in fees).
Am I right to be sceptical?
Many thanks,
I am 49 and have a small number of pension pots totalling about £750K - all of which are DC. My current employers scheme accounts for £300K of this and I have been advised to leave this alone due to the employer’s contribution.
The remaining £450K is split between three schemes that invest in standard funds with varying AMC of between 0.25% and 0.75%. He has proposed transferring these to a SIPP as this would be actively managed as opposed to simply relying on the performance of funds. There would be an initial charge of about £6,000 and a subsequent AMC (including VAT) of 1.8%.
At first glance, staying put seems like a no-brainer - but I would like some other opinions. In addition to the actively managed funds, I would also get investment planning advise, discretionary portfolio management, and regular ongoing reviews. I would also benefit from lower transfer fees (0.5% + VAT) for subsequent transfers into the scheme, i.e. when I finally leave my existing employer. These same lower fees would also apply should I transfer my wife’s pension pot (currently £600K) into the same scheme (i.e. the same logical pot when it comes to fees, but still two independent pension pots).
As I see it, I have three options …
1. Do it now - in theory it will be cheaper (as doing it later with a larger pot will incur a larger transfer in fee) and would start to benefit from the active day-to-day management
2. Do it later - benefit from the lower charges of my existing funds, but incur a larger transfer fee later on.
3. Do something much later - I understand that my current providers don’t provide a drawdown facility, therefore I will have to do something at some point when I want to start access my various pots, so should I do it earlier?
I am a little sceptical of the recommendation and also very conscious that once I transfer in, I cannot go back (okay, I know I can transfer to another SIPP provider - but will incur similar transfer in fees).
Am I right to be sceptical?
Many thanks,
0
Comments
-
In my opinion, yes. Personally, I wouldn't touch this proposition with a 10ft pole.Am I right to be sceptical?
Considering just one alternative, you could move these pensions to a self-managed SIPP such as Youinvest, Interactive Investor or iWeb for a transfer charge of between £0 and £50. Fund charges for holdings in these would come in at around 0.75% to 1%, less if you are happy with passive tracker funds. In flat fee platforms, charges of below 0.3% are entirely possible.
The saving here is £6,000 up front on the transfer, and upwards of £4,500/year on annual management charges. If you spent £300-£600 for two to four hours of truly independent IFA time each year to review your holdings and recommend any adjustments for you to make, you can construct the same product as your 'pension specialist' suggested, but at less than half the cost. Treat yourselves to a nice holiday each year on the rest of the cost saving.
Or you could just leave these pensions where they are until you need to draw them (and still take the nice holidays each year!). From what you describe I don't see any need at all to move them.
One final note. With £750k in pensions at age 49 you will want to watch out for possible problems with hitting the pensions £1mm 'Lifetime allowance'. Real growth of 5% over six years and you will hit it. Age 55 is the earliest at which you can do anything to ameliorate it (short of simply reducing contributions).0 -
I understand this to mean that he receives a salary rather than commission on the products they sell.
IFAs are not paid commission. It was abolished at the end of 2012. it has been fee based since then.The remaining £450K is split between three schemes that invest in standard funds with varying AMC of between 0.25% and 0.75%. He has proposed transferring these to a SIPP as this would be actively managed as opposed to simply relying on the performance of funds. There would be an initial charge of about £6,000 and a subsequent AMC (including VAT) of 1.8%.
£6000 is very expensive for DC transfers. Typically you should be looking at £1000-£2500 as the ideal range.
VAT should not be charged as intermediary business with an intention to purchase is not VATable. 1.8% p.a. all in (platform, advice and funds) is not bad (assuming its mostly or all managed funds). However, if its 1.8% AMC only with other things on top then its not good.
I am not a fan of discretionary fund managers. It is just another layer of charges and DFMs rarely have returns that cannot be obtained or improved on using conventional investment funds.
Am I right to be sceptical?
I would be with those charges but as to the actual transaction, there is insufficient information.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
His report would make interesting reading, improved investment peformance isn't normally a justifiable reason.
In most instances the only reliable reason to transfer is reduced costs and charges and that is latently not the case here as the OP would be paying more.0 -
You should be sceptical. Those fees are nothing short of shocking.
What comparison have you been given of your existing pensions and the proposed solution? Nobody can predict future returns so don't fall for that old chestnut about higher returns.
The most important thing is that your money is invested in a way which is suitable for your risk profile whether it stays where it is or is moved. It's unlikely that adding on another layer of charges via a discretionary manager is going to achieve that any better than a different IFA who can select suitable funds to meet that risk profile.0 -
Thank you all for the comments. You have confirmed my gut feeling.0
-
There would be an initial charge of about £6,000 and a subsequent AMC (including VAT) of 1.8%.
So you'd pay him nearly 1% of all your pension capital and then pay annually something that might be near to 50% of your real return on your investment. It would be cheaper to buy a boat. Or a greyhound. Or one leg of a horse.Free the dunston one next time too.0 -
The fees charged by the IFA are certainly excessive and if you can't understand the value you get then I would advise against paying them.
Unbiased.co.uk have a useful guide which allows you to compare average advice charges. You can find it if you search "unbiased cost of advice".
If you would like to use an IFA then they should be providing so much more than just pension/investment management. They should get to know you, what sort of lifestyle you want in retirement and then build you a plan that visually shows you all your options.
There should be a fixed fee and a clearly defined service that is not just based around them managing your money.
You could do this yourself if you had the time, inclination and skill. If you don't then it's like anything else, you pay an expert to do it for you.0
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.2K Work, Benefits & Business
- 608K Mortgages, Homes & Bills
- 173K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards