Repensioning. Increase your pensions return without any risk discussion area

dunstonh

Thanks for anyone who has information re this. :-)

Answered on your duplicate post on your own thread:

https://forums.moneysavingexpert.com/discussion/comment/38449746#Comment_38449746

pulck

I have a stakeholder pension fund which has been performing badly. In 10 years it has just about broken even.

An IFA has approached me and advised me to transfer to a similar fund with a different company. He has given me the details of the new fund and all the whys and wherefores for changing. He has told me that I will pay less commission back to the pension company and that there are no transfer penalties for setting up the new fund. The new fund has also performed better historically.

However, in order to go ahead with the transfer, he is asking me for £2k in commission fees. This will be subtracted from my current pension fund over a period of about 2 years.

What is to stop me from just using the advice given in the Repensioning Guide (i.e. by setting up the new fund myself via Cavendish Online) and saving myself a lot of money? Am I being naive in thinking that there are no pitfalls?

Even if I didn't want to switch to a new fund, wouldn't I just be better off repensioning anyhow and putting the money straight back into the same fund, thus saving myself some commission charges (bearing in mind mine is a stakeholder pension and therefore I cannot be penalised for transferring the funds)?

dunstonh

I have a stakeholder pension fund which has been performing badly. In 10 years it has just about broken even.

No you havent. You have a stakeholder pension. It neither performs well or bad. It doesnt perform at all. The investments you place in the stakeholder pension will perform. If you put the same investments in the new pension it would have performed virtually the same way in the same period.

He has told me that I will pay less commission back to the pension company and that there are no transfer penalties for setting up the new fund. The new fund has also performed better historically.

So there is justification as you will pay lower charges. Thats good and quite normal as modern personal pensions are often cheaper than old stakeholders. Performance is largely irrelevant as already mentioned. Its how you invest that matters.

What is to stop me from just using the advice given in the Repensioning Guide (i.e. by setting up the new fund myself via Cavendish Online) and saving myself a lot of money? Am I being naive in thinking that there are no pitfalls?

Nothing is to stop you doing it. However, will you actually save money? For example, an IFA taking around £1500 in fees for a 30 year old on a regular contriubtion can result in you paying less in charges than a nil commission stakeholder pension. Would your aim be to pay less charges or not let the IFA be paid for work done?

Would you know which provider to use and how to invest? What type of pension would you use? Would you do your future rebalancing? Do you undertstand the reasons why your investment funds have performed they have and how your future investment funds are to be selected and how they will likely perform?

If you know what you are doing then its possible to save some money. However, if you dont know what you are doing then its possible you will end up losing far more money.

pulck

Thanks for your reply, dunstonh.

dunstonh wrote: »

Nothing is to stop you doing it. However, will you actually save money? For example, an IFA taking around £1500 in fees for a 30 year old on a regular contriubtion can result in you paying less in charges than a nil commission stakeholder pension. Would your aim be to pay less charges or not let the IFA be paid for work done?

Could you explain this to me. How can £1500 in commission result in my paying less charges? Do charges automatically go up when there is no commission paid?

My aim is not to swindle the IFAs. Like most people, I'm just out to get the best deal possible. I do not mind paying IFA's fees in the slightest if it is cost-effective, but not all IFAs are equal and I want to make sure I'm not paying inflated prices. BTW my IFA says he is effectively charging me £200p/h for the work. That sounds like an awful lot of money to me.

dunstonh wrote: »

Would you know which provider to use and how to invest? What type of pension would you use? Would you do your future rebalancing? Do you undertstand the reasons why your investment funds have performed they have and how your future investment funds are to be selected and how they will likely perform?

I should make it clear that my existing pension fund and the proposed new fund are not managed in any way by the IFA. They are off-the-shelf packages where neither I nor he has any control of the holdings or the how much is invested in each holding. Nor are they balanced with other pension packages. I'm not sure I understand why my funds have performed poorly, but neither can I be confident that my IFA does. After all, it was an IFA that selected my current pension package for me.

dunstonh wrote: »

If you know what you are doing then its possible to save some money. However, if you dont know what you are doing then its possible you will end up losing far more money.

That's why I'm posting here. The more I can learn the better my decision will be.

dunstonh

Could you explain this to me. How can £1500 in commission result in my paying less charges? Do charges automatically go up when there is no commission paid?

The two things are not directly linked. i.e. the increase is not 1:1. Take Aviva, for example, on single premium/transfers, they have paid over 7% at times and under 3% on others but the charges have remained the same.

The best commission payers are not necessarily the most expensive and the lowest commission payers are not necessarily the cheapest. For example, Lets say the fee is £1500 and your annual charges are 0.23% with the IFA using a personal pension. You would be hard pushed to find a nil commission stakeholder that gets below 0.5%. Maybe with high fund values but then many personal pensions get cheaper with high fund values as well. So, whilst the fee gives an initial hit, the lower annual saving for life means that you could break even and end up better off at some point (a £100k fund would be over £250 better off with the IFA option with fee compared to a 0.5% stakeholder in one year. If your fund spends 6 years at £100k then that fee is covered in the annual saving. If it spends 10-15-20 years above that amount then you are miles better off with the fee based IFA option than the nil commission stakeholder).

I just did a dummy example on my software and £1500 on a £55k transfer value with £125pm gross with 3% p.a. indexation for 30 years and the personal pension with that fee came out at £477,462. An aviva stakeholder with equivalent commission of £1500 came out at £441,031. A nil commission aviva stakeholder came out at £467,722. That makes the nil commission option £10k more expensive than the using the fee based IFA taking £1500.

When you buy a washing machine do you go by the price you pay or the profit the retailer makes on it? Going by commission or fee is like measuring the cost by what the retailer is making. Not what you are paying.

I'm not sure I understand why my funds have performed poorly, but neither can I be confident that my IFA does. After all, it was an IFA that selected my current pension package for me.

This answers a lot of questions on whether you should DIY. You dont understand why the fund has performed poorly. Has it actually performed poorly in relation to where it is invested? e.g. if its a FTSE all share tracker then it wont have performed badly. It wont have performed well in relation to other investments but the UK stockmarket had one of its worst 10 year periods in history. If the new pension also invests in a FTSE all share tracker then had you been in this new pension 10 years ago, then you would have got much the same performance.

I very much doubt the IFA does not understand the investments but if you dont have the confidence then use a different IFA.

After all, it was an IFA that selected my current pension package for me.

You have a stakeholder pension which means you must have taken it out after 2001. You say it was 10 years ago so that would indicate 2001 is the likely year. In 2001 personal pensions were virtually dead. SIPPs were nowhere to be seen unless you have hundreds of thousands and platform based pensions didnt exist. The FSA introduced rule RU64 which started that year which basically forced the stakeholder pension to be the only option recommended for anyone other than sophisticated investors. So, you cannot really criticise the advice given at that time.

You havent mentioned how it is invested, so cant comment on that. However, stakeholder pensions in general tend to have more basic investments and many stakeholders of that period had a very limited choice of funds. Some only offered a FTSE tracker fund, some only a with profits fund or a balanced managed fund. Over the last 9 years, the aviva index tracking fund is up 58.9%. The Aviva balanced managed fund is up 55.6%. both are consistent with their sector averages and therefore not bad performers. This time last year, both would have been in a negative position over 8 years. Even if you paid in £100pm you couldnt be in a negative position with either of those two funds now over 9 years as both would have values over £15,000 (nearly £5000 more than paid in). I have taken those two as benchmarks only.

So, what fund are you invested in and what provider? It would be interesting to know what fund you have had for nearly 10 years that is currently lost you money over that period.

Unless you know why and how its lost money (or even if it has as I have some doubts on that) then you shouldnt really be considering DIY.

pulck

dunstonh wrote: »

You havent mentioned how it is invested, so cant comment on that....

So, what fund are you invested in and what provider? It would be interesting to know what fund you have had for nearly 10 years that is currently lost you money over that period.

Thanks for the lengthy reply and sorry for my late response - Crimbo 'n' all that.

I'm a bit paranoid about putting my pension details on a website forum. Would you be prepared to comment directly if I sent you a PM? I realise that it would not benefit the forum users, so would understand if you said no. But I would value your opinion.

Paul_Herring

pulck wrote: »

I'm a bit paranoid about putting my pension details on a website forum.

You're not being asked for such details. You're being asked for:

1) Provider.
2) Fund.

Unless you're paranoid about providing either of those of course. If #1 ended up being Santander, I'd be paranoid about admitting it as well.

(I do hope I'm wrong here...)

sendmeacheque

I'm interested in this but think I may have missed something as I skimmed the thread.

I currently have two pensions, one holds around 80k (Scottish Widows) and is around 8 years old, the other around 20k (Friends Life) and is around 4 years old.
Both of these where started at companies I work for where the obligatory financial advisor comes along and sets it up, they no doubt represented good value for money since the company matched my contributions.
Now however I'm self employed and having just sent a cheque to one of them notice a decent slice of that cash has been handed back to the advisor that set it up.

Now I don't mind anyone making some cash - but this seems a little obscene to me, both these advisors seem to be creaming off fairly large amounts of cash from my pensions for what seems like an hour or two's work. Neither have ever been back in contact which begs the question how can there be any justification for such obscene rates of "pay" for so little work??? Worse, I can't even merge the two pensions without handing over a decent cut to the advisor that set up the original pension! (Last time I merged my pensions it cost me the best part of 2k)

Hence my interest.

My understanding is that the advisors are just selling products, so why can't I simply get advice from an advisor on the best product, paying them a decent hourly rate to "advise" me and then use someone like Cavendish to purchase the product for me? (Assuming the advisor can't or won't purchase the product on a commission free basis)

Perhaps I'm missing something important.
Anyone care to educate me?

dunstonh

Neither have ever been back in contact which begs the question how can there be any justification for such obscene rates of "pay" for so little work??

in the same way you buy products from a retailer and they get their profit from it. The advisers in this case are the retailers.

Worse, I can't even merge the two pensions without handing over a decent cut to the advisor that set up the original pension!

Why?

My understanding is that the advisors are just selling products, so why can't I simply get advice from an advisor on the best product, paying them a decent hourly rate to "advise" me and then use someone like Cavendish to purchase the product for me? (Assuming the advisor can't or won't purchase the product on a commission free basis)

You would be daft to do that. If you go fee basis with an adviser then the product can be arranged with no commission. That would make it cheaper than paying Cavendish after getting advice. Plus, Cavendish offer a limited panel and chances are the product that is best for you is not one they offer.

atush

An IFA has approached me and advised me to transfer

I think this is where your problem lies. IFAs don't approach random people. They are approached by random people.

Sendme, sounds like you need your own thread perhaps. But I would look at opening a new lower cost pension thru someone (but not limited to ) Cavendish online or another one with a bigger fund range.