Work Based Pension: unsure about consultant's ongoing fees

R2D2_2

I would be grateful for some advice on joining a newly formed work based pension. On the surface it appears a good deal - with my company putting 5% of my salary into the pension pot every month.

However, I am a bit unsure about some of the ongoing consultancy fees that are attached to the scheme ( especially having read about rip-off fees being banned by the government ).

Scottish Life would be charging an annual management fee of 0.75% to the fund, whilst the Financial Advisors ( who sourced the pension scheme for my employers ) would get £120 in the first year ( paid in 12 monthly instalments of £10 from the fund ) and from the second year £5 per month until retirement or leaving the scheme.

I can understand paying the consultant a one off fee for initially finding and presenting the product but I am less clear on the re-occurring costs per month in the second year.

When I asked what these fees were for I was told "This covers costs on all administration matters in respect of your policy and this includes annual meetings and ongoing advice including exit interviews and retirement advice".

On the surface this may appear reasonable - but what if I don't want to retain a financial advisor? What if I want to retain an existing advisor -should I be expected to pay for 2? My employer has used these Financial advisors for 20 years and they are based near our head office, many miles from our regional base - so 1 to 1 meetings etc would be very unlikely and problematic for all concerned.

I expressed my concerns and was told that acceptance of the advisors' fees were a condition of joining the pension scheme - which, to me, seems unfair. Much like buying a pc and being told that the purchase is subject to only ever using Microsoft.

Is this right? Does this accord with the government's position on consultancy fees? Should I be excluded from the scheme if I would prefer to either pay for one off advice as and when I need it or two, want to retain my own independent advisor?

Thanks for any help that's offered. ( Apologies in advance for the rather simplistic view presented above but I am new to pensions ).

dunstonh

( especially having read about rip-off fees being banned by the government ).

It should be noted that has nothing to do with your case though.

Scottish Life would be charging an annual management fee of 0.75% to the fund, whilst the Financial Advisors ( who sourced the pension scheme for my employers ) would get £120 in the first year ( paid in 12 monthly instalments of £10 from the fund ) and from the second year £5 per month until retirement or leaving the scheme.

That seems very good value. Don't forget Scot life have fund based discounts on most of their plans which lowers the figure.

I can understand paying the consultant a one off fee for initially finding and presenting the product but I am less clear on the re-occurring costs per month in the second year.

Main reasons are likely that the cost is so low in year one that they need to factor some into later years. Plus group schemes tend to have a high ongoing maintenance.

On the surface this may appear reasonable - but what if I don't want to retain a financial advisor?

You dont have to. However, the contract is between the adviser and the employer.

What if I want to retain an existing advisor -should I be expected to pay for 2?

yes.

I expressed my concerns and was told that acceptance of the advisors' fees were a condition of joining the pension scheme - which, to me, seems unfair.

Why is it unfair? The employer has passed the work over to the advisory firm and the firm needs to be paid for it. They are using a low cost pension scheme and taking a small amount as remuneration for it. If you wanted it loaded into year one then chances are it would be closer to £500-£1000.

Is this right? Does this accord with the government's position on consultancy fees?

it is right and no it doesnt have anything to do with the Govt. Plus, the fees are very reasonable.

Should I be excluded from the scheme if I would prefer to either pay for one off advice as and when I need it or two, want to retain my own independent advisor?

You are entitled to pay for your own advice but it wont change the contract that is available.

jem16

R2D2 wrote: »

On the surface this may appear reasonable - but what if I don't want to retain a financial advisor?

The financial advisor isn't yours - he/she is attached to the company for its pension scheme.

What if I want to retain an existing advisor -should I be expected to pay for 2?

Yes if you want individual advice solely for you.

I expressed my concerns and was told that acceptance of the advisors' fees were a condition of joining the pension scheme - which, to me, seems unfair.

Not really. You are also getting the advantage of the employer's contribution plus lower annual management fees usually.

Much like buying a pc and being told that the purchase is subject to only ever using Microsoft.

If you buy a PC with MS Windows on it, it is able to be used. If, however, you don't like MS Windows and would prefer to run a different OS, you will have to pay for that OS and wouldn't get a refund on MS Windows.

Is this right? Does this accord with the government's position on consultancy fees? Should I be excluded from the scheme if I would prefer to either pay for one off advice as and when I need it or two, want to retain my own independent advisor?

Yes it's correct.

R2D2_2

Hi Jem 16 & Dunstonh,

Thanks for your input. I am most grateful. It would appear, from what you've advised, that the fees are reasonable. Thanks again, that's reassured me.

jamesd

The fees are reasonable but the government is investigating the practice of companies passing on their pension costs to charges made to employees via their pensions and may ban the practice.

Focus on the 0.75%. That's an eminently good price if it's for a wide range of "clean" funds with no commission paid to the advisory firm. With a low percentage on the fund and a fixed monthly fee it's to the benefit of people who've accumulated larger pots or who are paying in more. It's a nice charging approach for those looking to control long term costs.

grey_gym_sock

i do think it's rather questionable that employers are allowed to pass these costs on to the employees. the employer pension contributions are a legal obligation (unless they are voluntarily paying more or sooner than they need to). they are not allowed to deduct their payroll admin costs from monthly salaries. why should pension contributions be different?

however, it's up to the government to change the rules. all you can do is decide whether, allowing for these costs, it's still worth being in this pension. it surely will be - the employer contributions are almost certainly the biggest factor.

(off topic: i've bought laptops, paying for a windows OS which i've not used. it's annoying, but you have to live with the choices available to you.)

R2D2_2

Thanks for the replies JamesD and Grey Gym Sock. I feel abit more reassured that the fees are reasonable and the scheme worth investing in. As you have suggested the benefits of the scheme will outweigh the fees, so as much as I may begrudge the advisors' ongoing fees, I'll probably sign up - I just wonder what, on a monthly basis, the advisors are doing on my behalf to justify their fee, when you would assume Scottish Life were actually managing / administering the account, not the advisors. Confused

dunstonh

It is a bit like buying a tin of beans. You pay the price on the tin but in getting to that price it has gone through the farmer, manufacturer, tin maker, printer, distribution and then retail. Scot life are the manufacturer. The advisory firm is the distributor/retailer.

I just wonder what, on a monthly basis, the advisors are doing on my behalf to justify their fee, when you would assume Scottish Life were actually managing / administering the account, not the advisors.

The adviser carry the liability for the sale (for life potentially). You are paying for that liability. As well as knowledge, regulatory costs, future admin tasks (of which group schemes can be more time consuming), distribution and retail. If I was to stop earning tomorrow, I would still carry around £90,000 a year costs. For industry that has no stock, it has damned high costs. About 1/3rd of income goes on regulation and compliance. Staff don't come cheap either.

R2D2_2

Thanks for the further insight Dunstonh. As I said in my original post, I am new to Pensions, and guessed my outlook was probably alittle simplistic. So thanks for your guidance. Much appreciated.

Perelandra

grey_gym_sock wrote: »

(off topic: i've bought laptops, paying for a windows OS which i've not used. it's annoying, but you have to live with the choices available to you.)

Although added as an "off-topic", this is a great piece of advice- focussing on what's available to you, rather than what's not.