Transfer small sum to another pension or refund?

barrymcgee

I started paying into my employers pension scheme. There has since been a big shakeup and I now need to opt out of the scheme (Option1) I'm in and opt in to another(Option2).

However, since i have only been paying into the scheme for less than 2 years, I cannot transfer what I've already paid in over and must start afresh. My two options are that my employer will offer me a full refund on what I've paid so far (£972 minus NI & tax deductions) or they will transfer £1272 to another pension scheme.

My plan had been to take out another pension with my bank with this £1272, (Nationwide), and just set up a little standing order to pay £20 a month into it for now.. as well as paying into my employer pension so, effectively, I'd have two pensions.

But the guy in Nationwide basically told me, this probably wouldn't be worth my while with such a small amount and if this wasn't my primary pension, I'd probably be better to take the refund and put it in a saving account. I remain unconvinced however as to me, I still lose £400 odd by doing this?

Any advice greatly appreciated..

Thanks,

Barry

Iancfp

Not convinced Nationwide is a good idea for advice - what they are probably saying is commission on this is so small we cannot be bothered.

As you say if you take the transfer you get some benefit of the employer contribution and as long as the new pension just takes a % charge like a stakeholder the fund should just accumulate. Its not even necessary to contribute esp if new employer scheme has good terms.

Most peoples pensions are a patchwork of different schemes so no problem with a small pot as long as you remember it later

dtsazza

barrymcgee wrote: »

But the guy in Nationwide basically told me, this probably wouldn't be worth my while with such a small amount and if this wasn't my primary pension, I'd probably be better to take the refund and put it in a saving account. I remain unconvinced however as to me, I still lose £400 odd by doing this?

Seems like the Nationwide guy was speaking rubbish - though that's assuming that there are no fixed charges to operate their pension. You're right that if you withdraw the money, you lose the tax relief - and there's no reason to assume that a savings account would do better than a pension at long-term financial provision (which I assume is the case as you do want this money to stay invested). AFAIK there's no official designation of "primary pension" either.

The only case I can see where it'd be worth drawing the money out is if the pension would charge you a flat rate per year (which would represent a very large percentage on a small fund). But I'm not aware of any that do this, it's all percentages of the total invested.

Basically, if a private pension beats a savings account for £100,000, it's still going to for £1272. You might be less motivated to actively manage your pension (if that's your plan) with a smaller pot, but if you were you could just apply the principles you decided on with your big pension, to your small pension in a fraction of the time.


Additionally, I think it's likely that you'd end up with a personal pension anyway. Typically with work schemes (if they're defined contribution), the pension scheme itself isn't that great, which is offset by employer contributions. But if/when you're not working for that employer any more, it's likely to be the case that by transferring the accrued value to a personal pension of your choice, you can benefit from a better choice of investments with lower fees and more convenient access.

So in light of that, there's no real downside to opening the personal pension now with the smaller lump sum. It also means that if you want to make additional pension contributions which won't be matched by your employer, you can make them directly into the personal pension and benefit from the better/cheaper funds.

gadgetmind

You need to keep working on trying to transfer this but it won't be easy. Banks are BAD BAD BAD places to do anything other than run a current account, so don't bother with them.

However, I'm finding it hard to know what else to do as many providers have lower limits on what transfer-in they will accept. I looked at this a while ago and looked at the stakeholder providers accessible via Cavendish and the lowest I found was £2k. However, there is a lot of expertise in this forum and someone might know of a suitable route.

How long do you have to make a decision?

[edit]

Hmmm, either things have changed or I was looking at the wrong thing.

See here -
http://www.cavendishonline.co.uk/pensions/shp_aviva.php

Minimum transfer of £20, pretty low fees, and easy to setup a direct debit. £35 up front (plus £35 for transfer) is far better than the bank/IFA option for such a small pot and low monthly contribution.

However, they say - "NOTE: Cavendish Online do not offer transfers from Occupational or Defined Benefit Pensions" - what kind of pension do you have? It sounds like defined contribution, but there are loads of other kinds of pensions, and I know zero about them as I've always had DC pensions.

Bigmoney2

Does the company scheme offer an AVC facility? If so is it worth putting the money in that?

Jules

barrymcgee

Firstly, thank you all for your time, it's appreciated!

@BigMoney2 - I'm don't know what an AVC facility is?

@dtsazza - Good point, I'm only 26 and don't expect to stay at my current job until pension age, in fact, I'm pretty sure I'll go on my own at some stage so will be requiring a personal pension then anyway..

I do know what you means about banks being very commission led - I made a meeting last week to discuss opening a small pension and was taken into a room with two advisors for one hour and basically forced to undertake an audit of my savings and what financial products I should be considering.. the girl then told me she would be making a personal recommendation report for me and I'm to go back this Friday when she will lay out the options - I came away with my head swiming with tracker this, bonds etc etc - it was all so simple in my head before I went in! :S