Company pension scheme and IFA fees

bendraper

My partner has just joined her company pension scheme which I think is a good scheme from both AMC point of view as well as company contributions.

however on reading the documents it seems that her work either use an ifa to refer employees into the scheme, to set up the scheme or otherwise be involved in the process. The net result of their involvement (one lettter to my partner from what I can see) is a first year charge of over 800 and an annual charge of at least 120 plus 12.5% of any increased employer contributions into the scheme.

This seems madness to me as they are getting commission and trail for doing nothing.

My partner has asked if she can take her employer contributions and pay them into her own private pension but they have said no.

Does anyone know of anything that we can do as by there own calculations the IFA deductions cost the pot an estimated 165000 in lost value over the life of the pensionn

Thanks in advance to anyone that can help

Kind regards

Ben

bilbo51

Could you please post your arithmetic of how you transform £120 per annum ([STRIKE]£5,000[/STRIKE] £7,200 over 60 years) into £165,000?

dunstonh

This seems madness to me as they are getting commission and trail for doing nothing.

They take the liability for the advice given on the scheme and they deal with the administration.

My partner has asked if she can take her employer contributions and pay them into her own private pension but they have said no.

Cant blame them. They dont want schemes all over the place.

Does anyone know of anything that we can do as by there own calculations the IFA deductions cost the pot an estimated 165000 in lost value over the life of the pensionn

I cant get those figures.

bendraper

Thank you both for your replies

In respect of the calculations I would point out 3 things:
1. they are not my calculations - they are from the IFA - and they have not shown their workings
2. the £165,000 is the loss the pension pot and not money paid to the IFA
3. the £120 is £10 per month plus 12.5% of any increased employer contributions (increased either due to increased wages) and also £850 at the start of the scheme.

This means that the seemingly small deduction when factoring in wage increases and pension fund growth over the life of the pension pot (as the pension fund calculations do in order to arrive at an expected retirement pot size) equate to a substantially greater net loss.

I have not done the arithmetic myself but I have no reason to doubt the calculations provided by the IFA.

I have no issue with the employer’s refusal - it seems perfectly sensible to not allow people to have their own schemes to ensure a simplified administration.

In respect of the IFA receiving the commission and trail I have not objection in principle for someone being paid for their advice and work and I also understand the concept of them taking liability for their advice, however... (this is a little bit of a rant)
There is no choice in the IFA - it's not independent in respect of being able to go somewhere else. There advice is not advice - there is no choice in the scheme joined, it is the company scheme or none at all. What liability does the IFA actually carry - if the scheme does not perform well, that is the schemes fault and no one guarantees results (and nor should they). If the pension fund fails then no one could expect that, where is the liability.

I'm really struggling to see what liability and IFA actually has when they join an employee up to an employers' scheme. Can anyone think of an event or series of events where the IFA would actually attract any level of liability for the advice?

I understand that they should be compensated for setting up the scheme initially, however they seem to be getting an awful lot of money for that first piece of work.

So basically the IFA is getting paid to administer the scheme - not really more than an administrative task of writing to employees once a year - assuming that the scheme does not do this directly.
(end of rant)

Just to re-state my question in case someone else is able to help, and irrespective of the above, is there any way of not taking the advice of the IFA and joining to company scheme entirely without their involvement and corresponding fees.

bendraper

I've just re-checked the information on the pension calculations and the effect of the dedications on retirement is £165,000. This does include the 0.5% AMC from the pension fund – apologies that I had not recognised this earlier.

The loss to the pension fund is calculated based on a total of £393,750 in contributions, £165,000 loss to the fund and transfer value of £1,170,000

dunstonh

I've just re-checked the information on the pension calculations and the effect of the dedications on retirement is £165,000. This does include the 0.5% AMC from the pension fund – apologies that I had not recognised this earlier.

This column is frequently misread and there was talk in the past of removing it.

It is saying that if the charges were not taken and invested that you would get £x. So, it is not just all charges, it is also taking the amount and investing at 7% pa (or whatever). Its a bit like saying that if you didnt spend £200pw at Tesco and then invested it at 7% p.a. that you would have £xxx.

Also, you need to remember that you are looking at it in todays terms. It is not todays terms that they are charged at but future terms. e.g. in 40 years £1000 will have the spending power of £50 today. (wild guess but you get the idea)

If it is any consolation, I feel just as peeved at it at times as you. If you have your own IFA then that IFA will recommend you join that scheme, often do the application forms with you and choose the funds but its the "invisible" IFA that gets paid. However, if it was not an IFA but a pension administrator then they would be paid too. Whoever, admins the scheme is going to be paid one way or the other.

I'm really struggling to see what liability and IFA actually has when they join an employee up to an employers' scheme. Can anyone think of an event or series of events where the IFA would actually attract any level of liability for the advice?

All advice carries liability. It is a reportable transaction to the FSA. Levies are based on turnover. PI cover is based on turnover and the FSA will do an audit on files for IFAs with group schemes just as they would with other plans. It is estimated that around 1/3rd of the charges made cover the cost and implementation of regulation.

Just to re-state my question in case someone else is able to help, and irrespective of the above, is there any way of not taking the advice of the IFA and joining to company scheme entirely without their involvement and corresponding fees.

No. The IFA is put there at the request of the employer. If the employer doesnt let you have your own scheme then you get no choice.

bendraper

dunstonh, thanks very much for your post.

I always understood the difference between the actual fees paid and net effect of those fees over time on the pension pot - I didn't think the IFA got paid £165,000!

I think it is a shame that the column is there if there is nothing you can do about it. If there was the ability to change it i.e. a genuine choice to not incur those charges, then I think it would be useful as an illustration and no more.

Your answer was just what I thought to be honest, but thank you for clarifying it. I might still have a quick word with the Pensions Advisory Service and see if they have anything further to add, although I'm not hopeful.

I know that someone gets paid whatever, but when you can go through Cavendish Online and get commission and trail rebated into the scheme (or directly back depending on the pension scheme that you join) it just seems a shame that we're not going to have the benefit of that money. So much regulation around pensions and so many moneysaving options, but ultimately no real choice in this matter.

When the chips are down it's better to join a scheme to get the employer contributions irrespective of the fees.

Thanks again to everyone who posted.