Pension Transfers

GoodKarma

A slightly biased thread but I wanted to get something in the public forum.

I work for a firm of independent Financial Advisers who offer Pension Reviews - basically these pension reviews solely concentrate on saving people money on charges in their existing pension contracts. Private pensions will make annual charges (referred to as Annual Management Charges) by way of a deduction from the fund for administering and managing the pension.

There has been an upsurge in these pension reviews (yes we are one) and the reason I wanted to post is that a lot of companies are hoodwinking customers so I wanted to explain what (in my humble opinion) you should concern yourself with if offered a pension review.

The only consideration of a pension review should be charges and the reduction therein - if a company starts promising fantastic investment returns, run a mile. No company can ever guarantee returns yet there is an increasing amount who claim they can offer 8,10,12% or more guaranteed returns. All you need to do is invest in trees in Chile or Storage pods in Birmingham. These returns are not guaranteed no matter what they tell you, quite literally a forest fire in Chile could see your pension go up in smoke! A under occupancy on storage pods could see empty promises in your returns.

I say this as we as a company are increasingly coming across customers who are being mis-advised.

The Financial Conduct Authority is doing all it can to stop these firms offering these high risk products to people with existing pension funds, an easy way to check the advice your given is to ask the company concerned if they are FCA regulated - if they are not then it is illegal for them to advise you on your pension.

Many will say how they are Ministry of Justice regulated, this does not give them authority to advise on financial products only authorised and regulated firms and advisers of the FCA can advise on Financial Products anyone else is trying to get one over on you, don't let them!

Rant over, I just hope this post saves at least one person from destroying their pension fund.

Remember if they are not FCA authorised you would be better getting financial advice from someone in the local pub!

mania112

Seems to me you're just telling us that your firm are doing pension reviews incorrectly.

GoodKarma

Not sure how you get that impression but obviously you are entitled to your opinion my firm only review charges and nothing else which is the only way a pension review should be completed but thanks for ensuring I clarify

jem16

GoodKarma wrote: »

my firm only review charges and nothing else which is the only way a pension review should be completed but thanks for ensuring I clarify

Whilst charges are important, they should not be the be all and end all so I would expect a pension review to look at more than just charges. Potential ( within properly regulated investments) should also be considered.

GoodKarma

Quite right Jem16 but as you have said investment performance can only ever be described as potential, everything else being equal somebody should not be advised to move a pension on the basis of potential performance, but it will (should) always be discussed within a review after conducting a thorough fact find with a customer and a full discussion around attitude to risk.

mania112

A decent pension review is actually quite straightforward.

It requires the use of software like SelectAPension or O&M (and i'm sure there are others).

You compare the current projection to retirement Versus everyone else (using default funds).

Comparing those maturity values shows which is cheapest. If it's cheaper to move, do so.

Investments shouldn't really ever be a factor (unless in situations like a speculative investor and fund choice is locked to With-Profits).

GoodKarma

Agreed Mania, we actually use Selectapension but going back to the original point of my thread people who are being advised to transfer for fantastic and very high risk returns need to beware.

mania112

GoodKarma wrote: »

Agreed Mania, we actually use Selectapension but going back to the original point of my thread people who are being advised to transfer for fantastic and very high risk returns need to beware.

I agree.

You can lead a horse to water... but if you charge for that direction many customers think there's an ulterior motive!

Aegis

mania112 wrote: »

A decent pension review is actually quite straightforward.

It requires the use of software like SelectAPension or O&M (and i'm sure there are others).

You compare the current projection to retirement Versus everyone else (using default funds).

Comparing those maturity values shows which is cheapest. If it's cheaper to move, do so.

Investments shouldn't really ever be a factor (unless in situations like a speculative investor and fund choice is locked to With-Profits).

I think I need to disagree somewhat with both of you - nothing personal intended.

As I read it, by your logic you would need to move everything into a pension which made a cheap tracker fund their default, as that would represent the best projection through to maturity if you assume a constant underlying growth rate.

Other reasons to transfer than just charges, off the top of my head:

• Wider investment range, whether funds, commercial property, unlisted shares, discretionary management, etc. Also includes access to non-insurance company funds, which are often awful
• More retirement options - access to drawdown, phasing, scheme pension, etc
• Better death benefits

The charging comparison leads to a critical yield for a reason: to show what the new pension would have to do on an annual basis to overcome any additional costs. A critical yield requirement shouldn't preclude a transfer - it should certainly be accounted for, but it cannot be the sole determining factor. It's vital to account for other factors, including potential investment performance and flexibility plus any other benefits that will become available to the client on transferring.


Now, I absolutely do NOT believe that every pension should be transferred, nor would I ever consider transferring a client's asset into anything unregulated in the hope of chasing higher gains, but I most certainly will consider higher charging solutions if I believe they would be in my clients' best interests, for the same reason as I will consider an actively managed fund over a passively managed fund if I believe that to be more suitable. Naturally there's a barrier beyond which it simply isn't appropriate, but if I saw an additional requirement of, say, 0.2% per annum, I wouldn't necessarily rule out that transfer immediately.


If pension reviews were really simple, we'd have predictable outcomes and everyone would be moving towards one scheme alone. Things just aren't that easy when it comes to pensions (or, for that matter, investments).


General guidance for consumers here is easy though:

1. Don't ever respond to a cold call about anything to do with your finances, pensions included
2. Always dig into the charges and features of any scheme you are recommended. If you have been recommended something unregulated or in any way esoteric, walk away unless you asked for something
3. Expanding on 2, this would include anything overly specific or based on anything other than cash, bonds, equities and property (possibly with some commodity exposure). If it's a specific property, walk away. If it's a scheme based on buying up life insurance policies in the US, walk away. If it's a scheme domiciled outside Europe, walk away. Etc
4. Ensure that anyone you take advice from is FCA authorised and regulated. Check this on the FCA register if there are any doubts. You may also wish to enquire as to who the firm's pension transfer specialist is and what their qualifications are.
5. If there are any doubts as to the nature of the investments, then posting here or somewhere else with a number of professionals and interested parties (who may disagree on some things but will likely agree on many more) will allow for a partial critique of the recommendations.

sandsy

mania112 wrote: »

A decent pension review is actually quite straightforward.

It requires the use of software like SelectAPension or O&M (and i'm sure there are others).

You compare the current projection to retirement Versus everyone else (using default funds).

Comparing those maturity values shows which is cheapest. If it's cheaper to move, do so.

Investments shouldn't really ever be a factor (unless in situations like a speculative investor and fund choice is locked to With-Profits).

Why would you use default funds when these demonstrate neither the investment potential of the funds that are suitable for the client nor are representive of the cost of the actual funds that the client might be placed into?

jem16

GoodKarma wrote: »

Quite right Jem16 but as you have said investment performance can only ever be described as potential, everything else being equal

That's the point though. Why would everything else be equal?

People have different needs, different risk attitudes, different ages etc etc. Choosing a pension simply based on what's cheapest won't take that into account. Even if you do only look at cost, what would be cheapest in one set of circumstances could be the dearest in another.