Should I move my work pension to a sipp?

chancha

hi, I'm looking for some impartial advice wrt my pension. I was made redundant last year and currently I am now self employed. I was contacted by an IFA regarding some other business and he asked about my pension. I agreed to let them look into the transfer value and various options. He contacted me last week and siad he had all the details. I must admit that I am a total philistine when it comes to pensions etc and I also have a slight reluctance in trusting IFA's after having been stung in the past with lacklustre advice.

The thing that makes me uneasy about moving it is that I would be going from a guaranteed value to a pension that is not ( although the value may far exceed the guaranteed value).

The transfer value is approx £150,000 at the moment (I am 43 btw) and it has been recommended that I transfer to a standard life sipp and the money divided up into to 10 funds. Having looked at the fine print I see that their commision is considerable (3% upfront and then 0.5% per year) and it is this that is making me think that they are recommending this course of action not for my benefit but theirs.... are these figures reasonable?

Looking at the H-L website I could self select my own sipp but having looked at the performance figures I dont know who to believe..... help

dunstonh

I'm looking for some impartial advice wrt my pension.

You wont get that here. A) board is not authorised to give advice. b) the pro SIPP people will say put it in SIPP. The anti SIPP people will say not to.

The thing that makes me uneasy about moving it is that I would be going from a guaranteed value to a pension that is not ( although the value may far exceed the guaranteed value).

What type of pension is it? It sounds like defined benefit from the way you word it. Risk is a key consideration if moving from a defined benefit scheme. So, that shouldnt be ignored.

Having looked at the fine print I see that their commision is considerable (3% upfront and then 0.5% per year)

Why are you doing it on commission basis? A transfer value your size should be on fee basis. You should have been offered fee basis as an option and that is how you should consider any transaction like this.

and it is this that is making me think that they are recommending this course of action not for my benefit but theirs

What is the critical yield? You should be aware of that because its probably the single most important thing when comparing a defined benefit scheme with a money purchase scheme.

The FSA basically treats defined benefit transfers as mis-sold unless proven otherwise. So, the justification has to be damned good. You cant just transfer a defined benefit scheme willy nilly. So, what is the justification and how strong is it?

Looking at the H-L website I could self select my own sipp but having looked at the performance figures I dont know who to believe

The only difference with HL and Std Life is the 3%. Both keep the 0.5% p.a. trail. However, you wouldnt be able to use HL as they, like other providers, will not accept defined benefit pension transfers without sign off from an IFA. A fee based IFA would be cheaper than both HL and the commission based IFA

chancha

thanks for the reply......

the critical yield for retirement at 65 was calculated at 5.8% and 7.3% for early retirement.

EdInvestor

chancha wrote: »

The thing that makes me uneasy about moving it is that I would be going from a guaranteed value to a pension that is not ( although the value may far exceed the guaranteed value).

Please state the type of pension involved, final salary, money purchase, hybrid (eg S32).

jamesd

chancha, those critical yields should be readily obtainable for a broad range of investment risk tolerances. Unless you've specified low risk it'll probably work for you.

dunstonh

The yields are not high. Even you basic balanced managed funds have a long term history of achieving those rates. So, it really comes down to whether you want to risk it or not. Or perhaps how likely you are to want to commence your benefits before scheme age or any of the other potential differences that may apply between the occupational scheme and the personal scheme.

I dont think anyone should make their mind up for you on this one as it is a judgement call that only time will tell which option was right. Either option could end up being the best. You just wont know which until you get there.

Quite a lot of financial advice is like that. Picking the wrong option doesnt make the advice bad. No-one has that crystal ball. You present the options and the pros and cons and make a judgement call and as long as you understand that, then the advice is good. Even if it turns out to be the wrong option.

chancha

EdInvestor wrote: »

Please state the type of pension involved, final salary, money purchase, hybrid (eg S32).

The existing pension is a final salary pension with a guaranteed return of approx £8300 per year at todays prices. The issue however is that the death/early retirement benefits are not as good as moving the money to
a sipp. I have a meeting with the advisor tonight so can anyone tell me the sort of questions to ask?

Thanks to all

jamesd

"Please tell me the costs to do this transaction on fee basis".

"What ongoing management services do you offer for services such as rebalancing and how can I pay for those if I want them?"

"What costs are there when I add more money in the future as a lump sum or as regular monthly payments?"

For reference, 0.5% commission on £150,000 is £750 a year. Hourly on fee basis is likely to be cheaper. The commission would normally come out of the annual charges on the investments and choosing fee basis would normally reduce the annual charges on the investments by the reduction in commission, for example taking a 1.5% annual management charge for a fund down to 1%.

chancha

jamesd wrote: »

"Please tell me the costs to do this transaction on fee basis".

"What ongoing management services do you offer for services such as rebalancing and how can I pay for those if I want them?"

"What costs are there when I add more money in the future as a lump sum or as regular monthly payments?"

For reference, 0.5% commission on £150,000 is £750 a year. Hourly on fee basis is likely to be cheaper. The commission would normally come out of the annual charges on the investments and choosing fee basis would normally reduce the annual charges on the investments by the reduction in commission, for example taking a 1.5% annual management charge for a fund down to 1%.

What would you consider to be a typical fee for initial setup? Looking at the report the 3% fee will be taken over a 6 year period. I've done the maths and it seems a bit on the high side to me. However, as has been mentioned previously good advice is worth its weight in gold. It's the mediocre advice I'm scared of . I understand this is all down to the individual and you'll never know until you reach retirement if it was a good plan or not. My date for accepting the transfer is approaching fast but I am not going to rush into something so important. If I have to reapply for a new figure then I'll take my chance and hope it has not changed too much.

dunstonh

What would you consider to be a typical fee for initial setup?

You would expect a final salary pension transfer to be more expensive than a standard transaction due to it being specialist and high risk. Something in the range of £2000-£3000 would not be unusual. The 0.5% p.a. is normal and even with DIY providers they keep that for themselves. You could ask to have no servicing going forward and get some/all rebated but on a transaction like this, I think you really need servicing as things like rebalancing and risk profile checks will be needed.

chancha

dunstonh wrote: »

You would expect a final salary pension transfer to be more expensive than a standard transaction due to it being specialist and high risk. Something in the range of £2000-£3000 would not be unusual. The 0.5% p.a. is normal and even with DIY providers they keep that for themselves. You could ask to have no servicing going forward and get some/all rebated but on a transaction like this, I think you really need servicing as things like rebalancing and risk profile checks will be needed.

thank you, this makes me feel a bit better....