IFA suggests setting up new pension

ManicMum

Hi there

just wondered if someone could help me. We set up a private pension 3 years ago with Scottish Widows. End of last year we were doing ok with the returns but by summer this year, pension pot worth less than we had paid in to it.

We also had a new IFA by then as we moved. He reviewed the Scottish Widows and suggested cos of high fees (almost 2%) we would be better to switch to another major pension provider that charged 0.7% management fees. Also this company seemed to be doing better and using the growth calculations would perform better. However, when i got the paperwork, it said the commission for the advice from the IFA would be £2500 and this would be taken out of first year contributions by deleting units. I know some IFAs out there might jump down my throat about this. I am not saying they should not be paid for their advice, just seems a large amount. If that be the case, do you think it better to stick with pension we already have? Seems daft to have to pay set up fees twice in 3 years, as guess we paid some similar commission for first pension. Do you think IFA could be suggesting this to get a large commission? Is this really the best option?

Also, first pension has been frozen, so not sure if will still have to pay management fees on that one too.

any helpful advice appreciated.

dunstonh

I am not saying they should not be paid for their advice, just seems a large amount. If that be the case, do you think it better to stick with pension we already have?

You could always leave it where it is and pay more in charges. However, I would have thought that you paying lower charges was the best option for you despite the IFA earning £2500 out of it.

Seems daft to have to pay set up fees twice in 3 years

Why have you paid set up fees twice? Scottish Widows personal pension and stakeholder pensions since 2001 have had no set up fees.

as guess we paid some similar commission for first pension.

You didnt pay the commission. Scottish Widows did.

Do you think IFA could be suggesting this to get a large commission?

Do you think that you paying lower charges is more likely the justification for you? I dont think the FSA would accept the IFA wanting to earn money from it as being acceptable.

Is this really the best option?

You are going to move from 2% amc to 0.7% amc. Thats a very good reduction. You could of course move to a stakeholder pension and pay 1% amc if you prefer to pay more in charges.

The type of pension you have been recommended is a modern type that has "factory gate" pricing. For longer terms these are cheaper as you are not paying for the rest of the term of the pension for advice that was given at the start. You get that bit out the way quickly and then have a much lower annual management charge for the rest of the term. Initially its more expensive but long term its cheaper. Hence the 0.7% being better than the 1% on a standard stakeholder.

There was a thread not too long back that showed a 30 year old paying £100pm using an IFA getting £2500 fee was cheaper than getting a stakeholder on nil commission basis. You need to focus on the charges you pay over the term and in this case it seems you will be saving a lot of money.