Pension Consolidation and Transfer Rates

phykell

Hi,

I have several pensions accrued over many years working for different companies in the IT industry. I now have my own company and I'm looking at introducing a company pension scheme. I just wondered what my options might be with regards to my current pensions as it seems very difficult to keep track of them - I've so far only managed to get on-line access to two of them! I thought it might be worth while consolidating them into a SIPP or is there any advantage to transferring them over to my own company's pension scheme?

The performance and transfer rates have been a bit shocking. One of my pension statements, listed my pension fund at just £17.5K with a transfer value of only £8.8K! I asked the company to verify this and they then told me that the the £17.5K figure was a mistake and was actually only £10.7K. Apart from the fact that they've made such a huge mistake over the value, it seems like they're taking a lot of money in transfer fees. The reasons they gave were as follows:

1. £1.6K taken off for market value adjustment due to being invested in unitised with profits fund.

2. £300 "discontinuance charge due to an enhanced allocation rate of 117%.

Does this sound normal/acceptable?

Thanks for any advice offered

dunstonh

I thought it might be worth while consolidating them into a SIPP or is there any advantage to transferring them over to my own company's pension scheme?

We cant answer that wouldnt doing an analysis of what you have and what is available to you. So, it could be the case, but it may not be.

The performance and transfer rates have been a bit shocking.

performance relative to what? If you used the same investment in the SIPP you would get the same return. Has the investment under performed or has it performed relative to its sector and is it the sector that has not done as you thought it might? Are you looking only short term or are you including a whole economic cycle?

One of my pension statements, listed my pension fund at just £17.5K with a transfer value of only £8.8K! I asked the company to verify this and they then told me that the the £17.5K figure was a mistake and was actually only £10.7K. Apart from the fact that they've made such a huge mistake over the value, it seems like they're taking a lot of money in transfer fees. The reasons they gave were as follows:

1. £1.6K taken off for market value adjustment due to being invested in unitised with profits fund.

2. £300 "discontinuance charge due to an enhanced allocation rate of 117%.

Does this sound normal/acceptable?

So, there isnt a transfer penalty as such. Just a removal of £300 to adjust the allocation rate and £1600 MVR due to smoothing (the benefit of which you lose out on if you transfer out). Yes, it sounds normal and acceptable.

mania112

Yeah so the pension with a lower transfer value than fund value is invested in a 'with-profits' fund. It has a slightly different charging structure which assumes you're going to keep the fund until retirement, and so if you leave earlier they still need to recoup some costs.

That itself isn't necessarily reason NOT to transfer. You may find, if you're far enough away from retirement, you can make back that loss by further years of lower charges (in my experience that's almost always the case, if you're 15+ years from retirement).

An added benefit to consolidation (besides being easier to keep track of) is that the combined value of your pensions may allow you to benefit from large fund discounts that might not have been available for your individually lower valued plans.

To be sure that consolidation is right, speak to an IFA, a local expert can be found @ https://www.unbiased.co.uk

Linton

It is possible that an old WP pension has guarantees. These can be very valuable so suggest you check before doing anything drastic.

phykell

dunstonh wrote: »

We cant answer that wouldnt doing an analysis of what you have and what is available to you. So, it could be the case, but it may not be.

Thanks for your answers.

OK - I don't know what my company scheme will offer yet so I'll have to wait until that's in place. Hopefully, I'll be able to take some advice from the providers as part of us taking their product.

dunstonh wrote: »

performance relative to what? If you used the same investment in the SIPP you would get the same return. Has the investment under performed or has it performed relative to its sector and its the sector that has not done as you thought it might? Are you looking only short term or are you including a whole economic cycle?

Performance relative to either leaving the cash under the bed up to being in the best performing savings account available. I might be asking too much but I expect my pension provider to do a better job of growing my fund than I could. I'm thinking short term as I'm in my mid-40s now so I just want to make the best of what I have and I want to ensure my funds aren't being transferred around from provider to provider whilst I try and keep up with who manages what and what my pensions are worth. The most recent example is that one of my providers, having only recently taken over my fund from another provider, apparently miscalculated my fund value by over 70%.

dunstonh wrote: »

So, there isnt a transfer penalty as such. Just a removal of £300 to adjust the allocation rate and £1600 MVR due to smoothing (the benefit of which you lose out on if you transfer out). Yes, it sounds normal and acceptable.

My fund value is X, my transfer value is X - Y. Y sounds like a penalty to me no matter what it's called. Note that I have no idea why it costs £300 to "adjust the allocation rate" or £1,600 MVR due to "smoothing"

Thanks for the opinion on it being normal and acceptable - it's the first transfer value I've been quoted so I really had no idea what to expect.

phykell

mania112 wrote: »

Yeah so the pension with a lower transfer value than fund value is invested in a 'with-profits' fund. It has a slightly different charging structure which assumes you're going to keep the fund until retirement, and so if you leave earlier they still need to recoup some costs.

That itself isn't necessarily reason NOT to transfer. You may find, if you're far enough away from retirement, you can make back that loss by further years of lower charges (in my experience that's almost always the case, if you're 15+ years from retirement).

Thanks - that backs up my recent reading on the subject. I do wonder if there's any way that I can get my funds transferred where the performance hasn't met reasonable expectations and/or the service offered hasn't been of a reasonable quality. I wouldn't be so concerned about my pensions if it hadn't just recently been such a trial simply tracking down all the various funds I have, bearing in mind the number of times they've been transferred across providers. It's no wonder one of the main attractions for consolidation is simply to get them into a manageable state.

mania112 wrote: »

An added benefit to consolidation (besides being easier to keep track of) is that the combined value of your pensions may allow you to benefit from large fund discounts that might not have been available for your individually lower valued plans.

To be sure that consolidation is right, speak to an IFA, a local expert can be found @

Thanks - I'll take a look.

dunstonh

Performance relative to either leaving the cash under the bed up to being in the best performing savings account available.

Over what period? Whilst the period of the credit crunch and global recession has seen some poor short term returns, the long term returns are still beating cash.

I might be asking too much but I expect my pension provider to do a better job of growing my fund than I could.

And you think you would have done better on a mixed equity, bond and property spread? (you may well have done as not all are good but I do wonder if you are looking short term rather than long term)

I'm thinking short term as I'm in my mid-40s

You are still in the long term camp. Heading towards medium term.

My fund value is X, my transfer value is X - Y. Y sounds like a penalty to me no matter what it's called.

Its not a transfer penalty and not linked to the pension. It is linked to the fund. The type of fund you have has elements of guarantees in it which only apply if you stay until maturity. If you leave the fund at a time when the guaranteed value is higher than the underlying fund value then you have to pay the difference. If the underlying fund value was higher than the guaranteed value then you would not.

phykell

dunstonh wrote: »

Over what period? Whilst the period of the credit crunch and global recession has seen some poor short term returns, the long term returns are still beating cash.

All I know is that I've paid a similar amount in contributions to what they now tell me, twelve years later, is my transfer value. Simply put - it's effectively made *nothing* over twelve years.

dunstonh wrote: »

You are still in the long term camp. Heading towards medium term.

OK - that's interesting. I guess I can still add a lot to a pension fund then but to be quite honest, I don't have much faith in them. I'm just hoping that arranging my own company's pension will mean a better product with more accountable fund management.

dunstonh wrote: »

Its not a transfer penalty and not linked to the pension. It is linked to the fund. The type of fund you have has elements of guarantees in it which only apply if you stay until maturity. If you leave the fund at a time when the guaranteed value is higher than the underlying fund value then you have to pay the difference. If the underlying fund value was higher than the guaranteed value then you would not.

For the pension in question, I have no visibility of the fund nor do I know of any effective penalties for transferring away. As far as I know, it's going to cost me almost 20% of my fund value to move it. Good job they're *not* charging me what you would call a transfer fee as well then!

dunstonh

OK - that's interesting. I guess I can still add a lot to a pension fund then but to be quite honest, I don't have much faith in them. I'm just hoping that arranging my own company's pension will mean a better product with more accountable fund management.

What dont you have faith in? A pension is just a tax wrapper. It can access over 25,000 different types of investments. It has virtually the same investment selection that an ISA can get. So, if you dont have faith in pensions you cant have faith in ISAs, unwrapped investments or cash savings.

For the pension in question, I have no visibility of the fund nor do I know of any effective penalties for transferring away.

That is a fund issue. Not a pension issue. The pension is the tax wrapper. The fund is something you invest inside of the tax wrapper. Think of them as two different things.

Don't get me wrong, most With Profits funds are obsolete and are no longer suitable. However, some do contain valuable guarantees. The value is not in the performance of the fund but the guarantee they offer. Some have guaranteed annuity rates. Often as much as double the open market rates. If you had one of those then any alternative would have to double in value just to pay the same amount. Some have guaranteed minimum maturity values. Typically, the value is something that the fund really has no hope of achieving. So, they dont bother adding bonuses any more and invest purely for solvency. For the last decade, with profits funds have been invested for solvency being the key issue and not returns. This has seen some give dire returns on par with cash as they cannot afford to take investment risk. If you have none of the guarantees then it can be worth moving out to a more modern scheme or unit linked fund (or spread of unit linked funds depending on what the pension offers in its range). If you have guarantees then you need to look at the value of the guarantee. Not the value of the fund.

atush

Are you using an IFA to set up the company pension? If so, he'll be making a tidy sum and perhaps you can get a discount for looking at your old pensions?

And do as Linton said, check all of them for any guarantees as these can be extremely valuable.