Combining small pension pots to buy an annuity

Spanfree

I have a number of small self employed pension pots which are maturing on my 60th birthday
one below £10K and the rest between £10K and £30K. I have decided to buy an annuity
and my bank are willing to take on the job but are saying they want to convert all of the funds to one
pension fund before buying a single annuity.
As the funds are matured their will be no exit penalty but I am concerned about entry fees.
Does anyone know if this is normal practice and good advice?
I assumed that you could choose an annuity provider and they would accept and combine
the various pension pots.

dunstonh

I have decided to buy an annuity
and my bank are willing to take on the job

Banks are expensive, limited and generally have low skilled staff. Most sell ther own product or have a limited choice.

but are saying they want to convert all of the funds to one pension fund before buying a single annuity.

That is normal when there are multiple pots. However, you dont actually see that directly as its behind the scenes. That is of course assuming the bank are not transferring it to a stakeholder pension or personal pension, waiting for that to issue and then commencing it (wouldnt put it past a bank).

As the funds are matured their will be no exit penalty but I am concerned about entry fees.

The pensions wont be maturing. All they have done is hit the illustration date. You dont have to take them now. As for fees, there shouldnt be any on a pension commencement (unless you choose to pay fee basis). If the bank is setting up a pension first though and commencing that then there could be but that is not the right way to do it.

Does anyone know if this is normal practice and good advice?

Impossible to say without knowing the details. As it is a bank, I wouldnt be confident.

I assumed that you could choose an annuity provider and they would accept and combine the various pension pots.

That is correct. That is what an IFA would do for you. However, you are using a bank. So God knows what mess they will make of it.

See a local IFA. Get the job done correctly and you will also get a higher income than the bank have told you.

Spanfree

Thanks for the quick response dunstonh,
What I mean by maturing is that I am meeting my selected retirement date for the funds and I do want to convert the pension funds into an annuity now.
I have been told that it will be a full open market quote and the guy I am talking to has told me he is an IFA with qualifications in pensions but employed by the bank Natwest.
I will double check with regard to 'stakeholder pension or personal pension'
The bank has confirmed that they will receive approx. 1.15% commission from the provider which I assume is OK.
I will also try and find a local IFA.

dunstonh

I have been told that it will be a full open market quote and the guy I am talking to has told me he is an IFA with qualifications in pensions but employed by the bank Natwest.

The few banks that have an IFA arm are notorious for acting more like a panel. The bank puts rules on them that a proper independent would not have. These rules tend to exist because banks operate as salesforces and employ salesmanagers and give their advisers sales targets. It is never a good idea to get advice from someone on a sales target. You do not know what pressure they are under. It doesnt matter if they are tied, multi-tied, whole of market or independent.

When you have more than one pension, most providers cant use the open market option (this is where existing provider pays the 25% tax free cash but the income is paid by a new provider). They have to use the pension transfer with immediate commencement instead. This involves full fund transfer to the new provider with the new one paying the 25% and the income.

To you the process is much the same and ends up with the same result but usually the forms are slightly different and who pays the lump sum.

The bank has confirmed that they will receive approx. 1.15% commission from the provider which I assume is OK.

Tends to be between 1% and 1.5% depending on the provider.

I will double check with regard to 'stakeholder pension or personal pension'

dont worry about that. From what you added, its not an issue.

Loughton_Monkey

1. It is absolutely vital to use 'open market option' to obtain the best annuity rate on a money purchase pension when you wish to crystalise it [unless it has some form of guaranteed annuity].

2. As a corollary to the above, once you have found the best provider, it is brainlessly obvious to combine the funds so that they all enjoy the 'best' rate.

3. A bank is about the most unlikely place to find the 'best' rate. Do not even consider it. Open Market Options for pension schemes are one of these products that lack any major 'quality factor'. Absolutely pointless going to XYZ Ltd. because they are a 'good' company, or you are 'loyal' to them. An annuity purchase is absolutely cut throat. You have £X,000. You will get an income based on the annuity rate. One company offers 6.231%, another offers 6.232%. You just go for the latter. Even if it is 2 pence a month. Everything adds up!

Spanfree

Well seems you guys are correct with regard to banks. My bank told me Wednesday that they would do the work for their commission £1600 today they say they want to charge an extra £1000 for all of the work involved!
Is this normal? Is there a huge amount of work involved? I am probably being naive but it just seems to be a bit of form filling to me a bit like handling a probate.
Thanks for your good advice I have an appointment with an IFA next week hopefully they will be happy with their commission only.

dunstonh

My bank told me Wednesday that they would do the work for their commission £1600 today they say they want to charge an extra £1000 for all of the work involved!
Is this normal?

No. Its greed.

Is there a huge amount of work involved?

No. Its bitty and inconvenient paperwork with multiple sources but its not £2600 worth.

I am probably being naive but it just seems to be a bit of form filling to me a bit like handling a probate.

No. It requires factfinding, research, some phoning around, explaining the options to you and writing a report as well as dealing with the paperwork. On top of that you have a near lifetime level of consumer protection should the wrong advice have been given.

Its not difficult for an IFA. We can do this sort of thing with our eyes closed. Its very much a bread and butter transaction.

Spanfree

dunstonh, with regard to your last comment believe me I am not dumbing down an IFA's job. This fee my bank is charging is not for the advice it is just for them to convert the pension pots to one. When they discovered I knew a little about pensions they passed me back from the IFA team to their non advice team, so no advice given. I am supposed to be one of their favoured so called 'Private banking customers' too, god knows what they charge a standard bank account customer. These guys are unreal you would think they would show some humility after the bad press over the least few years.

dunstonh

unstonh, with regard to your last comment believe me I am not dumbing down an IFA's job.

I know. I was just indicating that its not just a couple of forms.

To be honest, the amount of paperwork involved in some relatively simple advice transactions nowadays is just crazy. The amount of (often pointless) hoops we have to jump through to give advice whilst a DIY transaction has none is often over the top.

This fee my bank is charging is not for the advice it is just for them to convert the pension pots to one.

I reckon that goes back to my earlier point of them transferring it into a personal pension to get them all in one place and then vesting that pension under the open market option. That would be a crazy way but it would generate an extra charge potentially.

The product you need is an immediate vesting personal pension and I am not aware of any provider that makes any charge for transferring pensions into that. Dont worry about that too much now but it when you see the independent IFA and you get to the application stage, don't be surprised to see IVPPP as the option on the form (the other being OMO - open market option - which is used when there is one source). Tell the IFA what the bank wanted to charge as it will give them a laugh at the standards the bank has. They too will probably say they cant see where that charge comes from unless its being set up wrong.