Pension change 'fees' - advice please !

samsocket

Hi & thanks for taking the time to read my thread.
I'm trying to advise my 28y/o Son as regards taking out a pension.
His employer offers a pension - I understand they would 'match' his contribution.
That's fine, but i've heard previously that if you change jobs, and therefore transfer your pension over to your new employers' scheme, that the 'admin' fee can be horrendous. Eg. You could have saved say £5000 in one pension scheme, but this is wiped out by the admin fee of £5000 by transferring to another.
Does this still happen? Any advice greatly appreciated!
Wayne

mania112

No that doesn't happen.

If you are advised to transfer by an IFA he must be able to clearly justify the reasons for doing so, and he is obliged to clearly show the costs of doing so.

But more to the point, your son should definitely take up the pension and make provision for retirement. His employer are giving him free money by doing so.

jamesd

Such a huge fee would only be for a transfer from a defined benefit pension (final or average salary types) into a defined contribution pension (where you get to pick the investments) and the cost there is to pay for some time-consuming calculations and guarantees that the professionals involved have to cover. A transfer of that sort would almost always be a bad idea. A few thousands might be involved in a transfer from one defined benefit scheme to another defined benefit scheme, to pay for the cost of the actuaries doing the work to find out how many years the pot from the old scheme can buy in the new one.

For the current normal defined contribution private sector pensions the usual admin cost of a transfer is perhaps £50-150 and may be nothing at all. There is no requirement for professional advice to do this sort of transfer, so no need for the costs of such advice.

If an IFA was used for a transfer from one defined contribution scheme to another the cost would depend on the IFA and might be as much as 3% of the money being transferred. But since that'sa percentage it couldn't take all of the money. For a small pension pot the IFA would probably say it's uneconomic because the minimum fee cost is unlikely to be lower than £500 and that or more would be charged if 3% was lower than that. What the IFA would do in this situation is find the best value alternative pension plan and the lower costs might well then eventually cover the cost paid for the advice.

kidmugsy

samsocket wrote: »

if you change jobs, and therefore transfer your pension over to your new employers' scheme

Why "therefore"? People will often just leave a pension in their previous employer's scheme, particularly if they believe its charges to be low.