Transfer funds from employer pension to private pension

carole6691

i wondered whether anyone could advise whether it is automatically best to keep funds in an employer pension scheme rather than transfer funds into a new private pension .I now have funds in 5 employer schemes all money purchase schemes.The sums involved vary beween 20 and 60k in each scheme.Any advice appreciated...

Aegis

carole6691 wrote: »

i wondered whether anyone could advise whether it is automatically best to keep funds in an employer pension scheme rather than transfer funds into a new private pension .I now have funds in 5 employer schemes all money purchase schemes.The sums involved vary beween 20 and 60k in each scheme.Any advice appreciated...

It's certainly not automatically best, but it's often the cheapest option. It depends what employer schemes you have money in, as these have extremely variable costs in comparison to most private schemes. Some employer schemes arte paid for almost entirely by the employer, resulting in very low annual fees on the pension funds, while other employers contribute nothing and the corresponding scheme is therefore charged at the default rate for the type of pension set up at the time.

In addition, you would need to consider the type of investment you want to make, as most employer schemes cater for the "lowest common denominator" of the firm and therefore want to offer a simple investment range that will suit the majority of their employees, rather than paying for a wider range that the majority will never need. It can mean that you end up stuck with a poor range of insurance company funds, which might not suit your aims, therefore further consideration is needed.

It's also worth considering how close you are to retirement and what you want to do when you reach retirement age. Most employer schemes are very inflexible, requiring you to decide how much tax free cash you want and to use the remainder to purchase an annuity. If you want to use, for example, a drawdown option instead (i.e. taking an income directly from the investments rather than paying your full residual balance to an insurance company), then you would need a more sophisticated scheme.

You'll appreciate from these comments that there are quite a few issues to consider, but hopefully this is a good starting point.

carole6691

thankyou Aegis appreciate the reply the whole subject does seem very complex .
From your comment it would appear best to get a breakdown of charges, performance, and extras as a starting point in all these individual schemes.
I am 46 and have therefore circa 20 years before retirement so not sure at present re the draw down option as it seems a long time away and I struggle to understand how much I will possibly have by the time I retire .. I believe I have circa about £150k at the moment. Would you have any comment on what I could possibly expect based on average performance for my retirement pension pot?

dunstonh

From your comment it would appear best to get a breakdown of charges, performance, and extras as a starting point in all these individual schemes.

The best quality pension contracts today have nearly 30,000 investment options. So, that is a lot of comparing.

Would you have any comment on what I could possibly expect based on average performance for my retirement pension pot?

A prediction of future returns is going to be impossible but generically, you would expect closer to the long term average growth rate the longer the period is. What the average growth rate is for you will depend on what you invest in. (Risk profile being the key influence).

Aegis

carole6691 wrote: »

thankyou Aegis appreciate the reply the whole subject does seem very complex .

It can be very complex, and is not helped by the government constantly tweaking the regulations! In your case it's probably not as complex as it first seems, because although the number of schemes is difficult to manage, at least they are all money purchase arrangements rather than having to include any of the quirkier scheme types out there!

From your comment it would appear best to get a breakdown of charges, performance, and extras as a starting point in all these individual schemes.

A good starting point is to look at the following:

• Charges
• Fund range (plus any additional charges)
• Any lifestyling options available (whereby the company can automatically shift your asset allocation for you as you approach retirement - whether this is a positive feature is going to be a personal matter rather than a definite yes or no)
• Retirement options

Past performance might be useful to know, but (i) is not a reliable indicator of future performance and (ii) might be completely irrelevant if you choose to change your investment strategy at this point anyway.

I am 46 and have therefore circa 20 years before retirement so not sure at present re the draw down option as it seems a long time away and I struggle to understand how much I will possibly have by the time I retire .. I believe I have circa about £150k at the moment. Would you have any comment on what I could possibly expect based on average performance for my retirement pension pot?

This is very difficult to anticipate due to the number of variables in play. If I was carrying out a cash flow analysis, I might choose to use the following long-term growth assumptions, usually after charges, though these are attempts to err on the side of caution rather than optimism:

• Low risk: inflation only
• Low-to-medium: inflation + 1%
• Medium: inflation + 2%
• etc

I should note though that any estimate of future growth is speculative to a degree, and all you can do is to try to position your portfolio to minimise downturns and take advantage of market growth. There are very few guarantees when it comes to investing, which is why it is important to review pension investments in particular on a regular basis to ensure that you take the right amount of risk for your circumstances.


To further complicate matters, of course, there's no way to accurately predict what income you will be able to take from the pension when you choose to retire.



Apologies that this is quite vague, but the assumptions that underpin growth projections are not easy to quantify without a fairly in-depth discussion of client circumstances, including their attitude to risk.