Transfer of a piffling pension?

bobharpman

Hi,

I'd welcome any advice on this little matter :A

My previous employer and I both made contributions into a stakeholder pension scheme for around a year. This was the first pension fund I'd had - it was with Legal&General - and I then changed employers about 4 months ago.

My new employer also has a stakeholder pension scheme with Friends Provident, which I joined; I now pay in (and they make contributions) via salary sacrifice.

The funds in my previous (L&G) stakeholder scheme amount to around £1800. I'd like to consolidate, and avoid paying L&G's fund management fees.

Upon enquiry, FP warned me of the potentially dire consequences of transferring from a defined benefits scheme or a defined contribution scheme. Also I read (here: http://www.tiscali.co.uk/money/pensions/guide2/2 ) that it's not a good idea to transfer amounts under £10k.

OK, my questions: Why on earth not transfer under 10k? And, given that this is a managed investment fund, why not transfer? My new pension won't lose any benefits, right? - and the old one had no "final salary" dealies going on.

I'm a little loathe to employ an IFA for a relatively piddling amount as the percentage lost may be higher than for most transferees... so any opinions out there most welcome! Thanks.:rolleyes:

dunstonh

FP warned me of the potentially dire consequences of transferring from a defined benefits scheme or a defined contribution scheme.

As you are not using an adviser, they will just give out every risk warning under the sun whether it applies or not.

Also I read (here: http://www.tiscali.co.uk/money/pensions/guide2/2 ) that it's not a good idea to transfer amounts under £10k.

That article is seriously incorrect and about 10 years out of date. Tiscali ought to be reported to the FSA for the misinformation in that one.

Why on earth not transfer under 10k?

No reason at all. Ignore it.

And, given that this is a managed investment fund, why not transfer?

No reason at all.

My new pension won't lose any benefits, right?

No. The only difference is the fund range and the annual management charges.

I'm a little loathe to employ an IFA for a relatively piddling amount as the percentage lost may be higher than for most transferees

If you go direct you are paying the same charges whether you use an IFA or not. Also, with mono charged pensions, like stakeholder, you dont lose money by paying an IFA. Its built into the annual management charge. If you have more than 20 years to go then using an IFA on a multi-charge contract can be cheaper than the stakeholder. That said, £1800 isnt worth it. Although the IFA appointed to run the new employer's scheme will almost certainly be paid a commission for you transferrring it in.

bobharpman

Sweet. :cool:

That's all pretty much as I thought. Thanks for calling foul on the Tiscali "advice" for me - it was the main thing putting me off.

Well, I reckon that since I've got 25-30 years to retirement, whatever the IFA in my new fund takes in commission will be offset by 25-30 annual management charges until then.

I'll go ahead. Thank you for taking the time to reply. :T

dunstonh

Well, I reckon that since I've got 25-30 years to retirement, whatever the IFA in my new fund takes in commission will be offset by 25-30 annual management charges until then.

Wrong assumption. Modern multi-charge contracts from IFAs can come in cheaper than nil commission stakeholders. For example, we recently looked at this and found a 30 year old paying £100pm until retirement with the IFA taking £2500 (which is a heck of a lot for £100pm but it was to find the break even point) was cheaper than a nil commission stakeholder pension.

However, your issue is not one of charges but one of employer contributions and they will usually only pay in the scheme they run (unless there are small numbers of employees or you are management).

MikeJones_2

Tiscali article quote: "...whereas a "defined benefit" final salary scheme offers guaranteed benefits."

Rubbish. By now everyone should know that a defined benefit scheme provides a promise rather than a guarantee.

As dunstonh says, they should be reported - but as they're not giving 'advice' in the regulatory sense, the FSA cannot do anything about it (as far as I am aware).

It's a warning to anyone who relies upon information from websites that are clearly not operated by pension professionals.

If you want to see other pension bloopers

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.