Minimising Pension Charges/Overheads

nettleby

We have a SIPP invested (via an IFA) with SippCentre. The IFA is doubling their charges (to 1% on top of the fund charges) this year.
They don't appear to be actively managing the fund, or at least the funds haven't changed for the three years since it was first transferred in.

Is this reasonable, and are there any alternatives we should be considering? e.g. self management, paying a fixed fee IFA (are these actually an option?).

OH is 55 soon, and was considering an early semi-retirement and looking at drawdown options.

Thanks,

Lokolo

If the 1% charge is the IFA then it's most likely and ongoing servicing charge which you should be able to ask to be stopped.

Wait for someone else to confirm that though!

dunstonh

We have a SIPP invested (via an IFA) with SippCentre. The IFA is doubling their charges (to 1% on top of the fund charges) this year.

That has become a fairly common move on low value funds. The more you have the cheaper it is in percentage terms.

They don't appear to be actively managing the fund, or at least the funds haven't changed for the three years since it was first transferred in.

That is only part of the role. It may be that they dont need changing. It will also cover ongoing administration, reviews, visits etc.

Is this reasonable, and are there any alternatives we should be considering? e.g. self management, paying a fixed fee IFA (are these actually an option?).

If you can DIY and do it well then you could save money. If you balls it up it could you pay a lot more. I have seen both scenarios many times over the years. Fixed fee is an option with some IFAs. Whether the fixed fee is worth it or not will depend on your fund size. Fixed fee tends to include no cross subsidy. Whereas percentage option does. That could mean you benefit from cross subsidy or you are a contributor to others benefiting.

OH is 55 soon, and was considering an early semi-retirement and looking at drawdown options.

How do you feel about doing drawdown and the reviews on a DIY basis? The 1% would typically cover all that.

Ongoing servicing can be turned off and in some cases the remuneration stopped and your charges lowered (typically that occurs on post RDR compliant products. It is hit and miss in pre RDR products where the provider may stop paying the IFA but keep the charge form themselves or replace it with their own charge to cover admin that an IFA would normally do).

nettleby

dunstonh wrote: »

That has become a fairly common move on low value funds. The more you have the cheaper it is in percentage terms.
I don't understand: if, say, the fund was 600K, then it would be a fixed 6K p.a. How is this cheaper in percentage terms?

If you can DIY and do it well then you could save money. If you balls it up it could you pay a lot more. I have seen both scenarios many times over the years. Fixed fee is an option with some IFAs. Whether the fixed fee is worth it or not will depend on your fund size. Fixed fee tends to include no cross subsidy. Whereas percentage option does. That could mean you benefit from cross subsidy or you are a contributor to others benefiting.

I don't understand the term "cross subsidy", but will have a search...

How do you feel about doing drawdown and the reviews on a DIY basis? The 1% would typically cover all that.

That may be one reason to stick with this particular company. I'd expect that in the short term, OH could manage it himself reasonably well as would have more time on his hands. Wheher he'd want to is another matter.

Ongoing servicing can be turned off and in some cases the remuneration stopped and your charges lowered (typically that occurs on post RDR compliant products. It is hit and miss in pre RDR products where the provider may stop paying the IFA but keep the charge form themselves or replace it with their own charge to cover admin that an IFA would normally do).

How can you tell whether a company is pre or post RDR? The company use Cofunds on SippCentre, if that helps.

My comments are in blue above.

dunstonh

I don't understand: if, say, the fund was 600K, then it would be a fixed 6K p.a. How is this cheaper in percentage terms?

If the fund was £600k then 1% would be expensive. A fixed fee would almost certainly be cheaper. However, if the fund was £60k, then 1% would likely be cheaper than a fixed fee.

I don't understand the term "cross subsidy", but will have a search...

The percentage method means that people get the same service whatever the value of their fund is and how much they pay. That may mean that those with smaller values are not paying as much as those with large fund values. However, the large ones cross subsidise the small ones.

That may be one reason to stick with this particular company. I'd expect that in the short term, OH could manage it himself reasonably well as would have more time on his hands. Wheher he'd want to is another matter.

He would need to look at which investment strategy to use, what investments to use, which providers to use and how to handle the withdrawals (i.e. use yields or capital growth or segment the portfolio to short, medium and long term periods and structure the portfolio accordingly). An annual review is typical for rebalancing and a three year review for GAD calculations is necessary as well. Some people can do that and are willing to spend the time. Others are not.

How can you tell whether a company is pre or post RDR? The company use Cofunds on SippCentre, if that helps.

Cofunds changed their pricing in November 2012. So, if it was before then it will be on the old pricing. If its after that, it will be on the new pricing. It could be transferred to a DIY provider who could discount. However, the cost of the discount may not be that great. If the new adviser is charging 1% and its 600k, then it will be a big saving. However, most IFAs will be happy to charge the typical 0.5% on that sort of amount. If the DIY provider is taking 0.25% then you have to look at the difference as to what the cost of advice is and whether that is value or not.

So, rather than having the option of same IFA or DIY, another option is to ask another IFA.

nettleby

dunstonh wrote: »

The percentage method means that people get the same service whatever the value of their fund is and how much they pay. That may mean that those with smaller values are not paying as much as those with large fund values. However, the large ones cross subsidise the small ones.

That explains it perfectly, thank you.

dunstonh wrote: »

Cofunds changed their pricing in November 2012. So, if it was before then it will be on the old pricing.

The pension was transferred prior to 2012.

dunstonh wrote: »

If the new adviser is charging 1% and its 600k, then it will be a big saving. However, most IFAs will be happy to charge the typical 0.5% on that sort of amount. If the DIY provider is taking 0.25% then you have to look at the difference as to what the cost of advice is and whether that is value or not.

The fund is somewhere around that figure. The charges last year didn't seem so bad at 0.5%, but an extra few grand a year seemed a big overnight increase for no apparent tangible benefit.

dunstonh wrote: »

So, rather than having the option of same IFA or DIY, another option is to ask another IFA.

Indeed: he was considering just that as a possibility, but wanted to get an idea as to the various options firt.

Many thanks for your input.

dunstonh

The fund is somewhere around that figure. The charges last year didn't seem so bad at 0.5%, but an extra few grand a year seemed a big overnight increase for no apparent tangible benefit.

If the fund was under £100k then I could understand it with the new rules brought in this year. For 600k I think you are looking at a greedy adviser. That said, probably 75% of the people they contact will agree to it. So they reduce their workload and liability and increase their income. So, there is business sense in it (not that their profit and reasons matter to you - it just helps to understand why)