Pension Transfers

dunstonh

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.

That is wrong. Very wrong. It shouldnt promise returns of course but charges are not the only consideration and the FCA would not be happy if that was the only consideration being made.

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

There are a lot of unregulated scams out there. We too have come across people that have been scammed.

I totally agree with you on the point of unregulated scams and schemes that promise the earth but have no way of backing it up. However, I disagree that charges are the be all and end all. Very important consideration but no the primary one.

mania112

sandsy wrote: »

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?

It's been a topic of much debate for years (within our firm, and all decent firms in the country).

Let's assume we're looking at a transfer from a pension to another and both have an equal range of investment options (to save discussing pensions which have a very limited number available).

How do we know which pension is best?

Simple question but very difficult to answer. What does 'best' mean?

Most people would quickly answer 'the one that has the best performance', but clearly it's impossible to know (and in our example we have an equal range of investments).

Others might consider features: Online access, free fund switches, availability of a free move into retirement (Drawdown/Annuity).

But nowadays all the big providers have those features.

What's left? Charges.

If we agree charges are the primary reason to justify a transfer, what charges are we talking about?

Product Charges
Fund Charges
Initial Fees (both provider and adviser)
Ongoing Fees (adviser)

Working on projections that don't include ongoing adviser fees, we need not consider those fees in the comparison. We consider ongoing management an 'optional extra' - so that's fine.

Projections include the product charges, so we must consider the product charges of the new pension PLUS the cost of transfer (initial fees).

Fund charges are not possible for comparison. Partly due to software constraints but mostly because it's normally not going to be the same fund in previous and new pension - because the client is rarely invested in the correct fund portfolio for their attitude to risk.

So using the independent software we compare product and initial charges only (selecting the cheapest fund available at this time).

This will provide us a with a league table of cheapest providers and will show us if there are cheaper available.

From there we can illustrate directly with the cheapest provider and now INCLUDE the prefered fund choices.

We can then say either:

a) We have found a cheaper pension with an accurate fund selection to your attitude to risk which are ALSO cheaper than you currently have.

OR

b) We have found a cheaper pension with an accurate fund selection to your attitude to risk which increases your average AMC from x% to y%.

- Feedback welcome.

mania112

Aegis wrote: »

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

I think we're on the same page, but a) I'm not very good at explaining myself on here! and b) I consider it a 2 stage process: Find the cheaper product and then find the cheaper product that has the right fund selection for the ATR of the client.

As you say, if the funds then lead to a higher cost we can still recommend the transfer.

jamesd

GoodKarma wrote: »

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

A consumer should avoid any company that only looks at charges and reduction in them. That's likely to be mis-selling. Worse still would be one that just uses the result of software like Selectapension to decide.

But before even those considerations, did the company or someone else contact you in a cold call? If so, avoid them because they are breaking the rules before they even start to deal with you, how are they going to act when they have access to a way to make money from you?

A more correct way to do a review is:

1. Properly assess risk tolerance and capacity for risk.
2. Use that to identify appropriate funds, feeding in investor preference for investment availability that might favour a SIPP or standard personal pension with say ETF capability over a fund only pension product. Don't neglect the different insolvency risk of insured pension funds vs uninsured funds, ETFs and other investments, particularly for investors with large pot sizes at the low end of the risk spectrum.
3. Look at the lowest cost providers for those investments and evaluate facilities and customer service and pick the best after getting feedback from the customer.

The post from Aegis was a good one and contains excellent guidance, with excellent comments also sometimes from mania112.

Cost most certainly is not the primary consideration in my own pension provider choice. It's a factor but investment availability and service features come ahead of solely cost considerations because those can help me make or cost me more money than charges.

My initial impression from the skimpy information so far is that the firm you work for may be engaged in systematic mis-selling and its customers could benefit from investigation by the FCA. Even those basic customers who'd just stick in a default balanced managed fund could be worse off if performance isn't considered.

atush

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.

Yes, we come across potential victims of these scams here every week, and try to nudge them in a different direction.

DavidLaGuardia

mania112 wrote: »

est performance', but clearly it's impossible to know (and in our example we have an equal range of investments).

Others might consider features: Online access, free fund switches, availability of a free move into retirement (Drawdown/Annuity).

But nowadays all the big providers have those features.

What's left? Charges.

If we agree charges are the primary reason to justify a transfer, what charges are we talking about?

Product Charges
Fund Charges
Initial Fees (both provider and adviser)
Ongoing Fees (adviser)

If you concentrate on published fund "charges" you are getting a very narrow idea of the expenses incurred on an investment that are not inlcuded in the AMC or TER. Unless you have a clue of what goes on at a trading level (which many advisers or their tools do not consider) you are not going to understand the costs.