Fees for pension advice

ny153

In early 2010 I approached an IFA to help me transfer an employer pension after I left that job. The IFA was paid by the new pension provider to approx £1200 for the advice and this offset the fees that the IFA would have charged me otherwise.

Then in 2012 I changed jobs again and I am now getting round to sorting out the pension from my second employer. I spoke to the same IFA to see what he could do for me. After an initial chat, he informed me that due to the new Retail Distribution Review rules, IFAs can no longer be paid a commission directly by the pension provider but instead a separate fee would need to be arranged. Not only would this apply to the funds in my second employer pension, but also the pension he help to set up in 2010. The two pensions have approx £14500 and £21500 respectively.

The IFA has suggested a 4% initial setup fee to bring the funds 'under management' and a further 1% annual service charge. He was keen to point out that the charges for the funds in my personal pension would reduce by about 0.5%, so this would partially offset the 1% annual charge.

How do these charges sound? Are they higher than usual because the two pensions are relatively small?

I feel that they are a bit high, specially paying 4% to bring the pension pot he set up in 2010 to bring it under management.

Reading some of the threads on this topic I get the feeling 3% and 0.5% pa are more common. The IFA is in the City of London and I am in my late 20s.

Any options welcome!

Thanks,

ny

dunstonh

Then in 2012 I changed jobs again and I am now getting round to sorting out the pension from my second employer. I spoke to the same IFA to see what he could do for me. After an initial chat, he informed me that due to the new Retail Distribution Review rules, IFAs can no longer be paid a commission directly by the pension provider but instead a separate fee would need to be arranged. Not only would this apply to the funds in my second employer pension, but also the pension he help to set up in 2010. The two pensions have approx £14500 and £21500 respectively.

The RDR has removed commission. However, most pension plans have been explicitly charged for the last 5-7 years anyway. There has been some issues with providers withdrawing the ability to top up pre RDR contracts or preventing them from being used to pay the fee.

The IFA has suggested a 4% initial setup fee to bring the funds 'under management' and a further 1% annual service charge. He was keen to point out that the charges for the funds in my personal pension would reduce by about 0.5%, so this would partially offset the 1% annual charge.

How do these charges sound? Are they higher than usual because the two pensions are relatively small?

I can understand that moving to a post RDR charged contract may well be the cheaper and better option (so that bit is plausible). Initially I thought 4% was expensive. However, when you look at the monetary value, it isnt really. If the fund value was higher, than it would become increasingly expensive. (to put it into context, commission on pensions, when it was payable) was often 5% to 8%).

the servicing charge of 1% is now typical of small value funds where people want servicing. There is less cross subsidy than before. So, whilst larger fund values get better terms post RDR, smaller values get worse terms. Even the regulator appreciated this would happen years before the RDR came in.

Reading some of the threads on this topic I get the feeling 3% and 0.5% pa are more common.

Pre RDR yes. post RDR no. I woudlnt offer servicing at 0.5% on your value unless there was a family link. It would be 1% for basic servicing or no servicing at all (probably the latter).

The IFA is in the City of London

Which almost certainly explains the higher costs. Although strictly speaking, a £1440 charge is actually pretty good for a city based IFA and very good for London.