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Company Pensions and SIPPs

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Hi all

My company offers a company pension and will make a relatively modest contribution (something like 2 or 3%). Simple enough. However, I get the impression that the company's chosen pension scheme (via Scottish Widows) will not necessarily allow me access to many of the investment funds that I am able to access via my SIPP. In fact - from the website it almost seemed that there were a handful (4?) of choices based on risk - and that was that. No control over fund choices - not even control over themes or geographies.

Although my investigation was in no way exhaustive - it seemed to me that the options available via my company pension have consistently underperformed the fund choices I have made in my SIPP by a pretty large degree (5 - 10% per year difference). Over time that difference will add up to an enormous amount of money.

My question is - given that the company scheme is the only one my company will pay into - and naturally I want the company contribution - is there anyway to mitigate the fact that the choices available via company provider are so poor?

The amount of money we are talking about is quite considerable over the long term so it seems like someone may have come up with a way of dealing with this very problem? Or is it the case that I just have to accept that if I want the contributions - I have to just live with what could be a pretty poor choice of investments?

Thanks in advance for any advice!

S
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  • jem16
    jem16 Posts: 19,632 Forumite
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    sh856531 wrote: »
    My question is - given that the company scheme is the only one my company will pay into - and naturally I want the company contribution - is there anyway to mitigate the fact that the choices available via company provider are so poor?

    You can ask whether or not a partial transfer would be allowed thus allowing you to transfer out an amount to your SIPP every now and again.
  • sh856531
    sh856531 Posts: 450 Forumite
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    You can ask whether or not a partial transfer would be allowed thus allowing you to transfer out an amount to your SIPP every now and again.

    Hi Jem

    Hmm - ok thats an interesting idea - I didnt know there was such a thing as a partial transfer.

    I'm guessing this is something that I would need to ask Scottish Widows rather than my company?

    Many thanks

    S
  • jem16
    jem16 Posts: 19,632 Forumite
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    sh856531 wrote: »
    I'm guessing this is something that I would need to ask Scottish Widows rather than my company?

    Perhaps both would need to be asked. I don't know.
  • sh856531 wrote: »
    ...
    My question is - given that the company scheme is the only one my company will pay into - and naturally I want the company contribution - is there anyway to mitigate the fact that the choices available via company provider are so poor?
    ...
    This is a great post. I have to say that I am amazed that this question doesn't crop up more often, given how restricted the investment choices on most employer schemes are -- I guess it's because the vast majority of people don't really have a clue about investment so just take whatever the default funds are without even thinking about it.

    I am in exactly the same position as you (I have a new work-based stakeholder pension with Scottish Widows but I would much prefer the money to be in my SIPP). When I spoke to Scottish Widows about this, the person on the phone said that it is possible to do partial transfers out to a SIPP, but I am not 100% confident on this as he didn't give any details and this was just one person who said this. It would be great if someone who has performed this manoeuvre could confirm that it is possible, or if it's in writing somewhere e.g. on the Scottish Widows website.

    I am currently just waiting for a few grand to accumulate in my Scottish Widows pension account in in order to make it worthwhile to attempt the transfer. Fingers crossed! I would be interested to know what they say to you about this.
  • sh856531 wrote: »
    I'm guessing this is something that I would need to ask Scottish Widows rather than my company?
    I would suggest you should ask Scottish Widows in the first instance, and they will tell you whether it is possible in principle / you need to ask your company as well.
  • sh856531
    sh856531 Posts: 450 Forumite
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    This is a great post. I have to say that I am amazed that this question doesn't crop up more often, given how restricted the investment choices on most employer schemes are -- I guess it's because the vast majority of people don't really have a clue about investment so just take whatever the default funds are without even thinking about it.

    It does seem insane when you consider the amount of money involved. The pension companies must be making out like bandits. They charge lets say 1% of everyone's pension funds per year and achieve a performance level that I would charitably call "embarrassing".

    I will be very very relieved if it is possible to do a partial transfer. I'll hopefully have the presence of mind to remember to do it every 6 months or so. Unless I'm being unduly harsh - the consequences of not doing this seem to be huge

    Many thanks

    S
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    "The pension companies must be making out like bandits." There's no sign that it's an unusually profitable industry, is there?
    Free the dunston one next time too.
  • sh856531
    sh856531 Posts: 450 Forumite
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    kidmugsy wrote: »
    There's no sign that it's an unusually profitable industry, is there?

    I don't know how profitable the average pension companies is. I would imagine the largest aren't exactly doing badly and that the fund managers aren't exactly bereft

    I should say however that I don't have any problem with a pension company making a profit and the people involved making a lot of money - as long as they deserve it.

    Where it becomes a problem is where they have access to a captive market to whom they knowingly sell products that seem really quite poor.

    I'd be the first to admit that my view has been skewed by the two company pension schemes I've been involved in. It could be that there are providers that either offer a good range of funds or employ fund managers who can actually beat the market rather than consistently under perform it. But sadly that hasn't been my experience thus far, so I'm beginning to resent having to pay their management fee simply to get my employers pension contribution and salary sacrifice benefits...

    Thanks

    S
  • dunstonh
    dunstonh Posts: 119,786 Forumite
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    I don't know how profitable the average pension companies is. I would imagine the largest aren't exactly doing badly and that the fund managers aren't exactly bereft

    Pensions are very low profit pre RDR. Stakeholder pensions were a loss leader in general as many providers took 7-15 years to breakeven. Indeed, the RU64 charges in 2001 saw many insurers close their doors to new business in the following years as they could no longer be profitable offering new business under those constraints. Things have moved on a bit since then and it can be profitable now to offer pensions again but its not exactly an area with a big margin compared with other retail products.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • jamesd
    jamesd Posts: 26,103 Forumite
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    edited 6 February 2013 at 12:35PM
    sh856531 wrote: »
    Hmm - ok thats an interesting idea - I didnt know there was such a thing as a partial transfer. I'm guessing this is something that I would need to ask Scottish Widows rather than my company?
    Company first, then SW.

    Then ask them whether they are covered by auto-enrolment rules yet and whether you can transfer if you opt out for one day and opt back in the next day to cause a new account to be created, or if not one day, how long you need to be opted out to get it done. An employer has to accept at least one enrolment request every 12 months, so that's at least once a year you can stop, presumably transfer, then re-start.

    If it's a salary sacrifice scheme the employer has an incentive to encourage you to participate because they can save some NI. It doesn't help them if the investment choice causes you to do much of your pension investing outside the company scheme instead of in it.
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