Why different rates to transfer pensions?

KFCMike

I thought adviser charging on AE compliant contracts was or is going to be banned so that the employer carries the cost not the employee?

The new law affects defined contribution schemes qualifying for automatic enrolment. It means an employer cannot receive advice under an agreement with a third party, other than a trustee, provider or scheme manager, and pay for that advice out of the members’ pension pots or contributions.

Got this quote from gov.uk but I can't yet copy the link

jamesd

Special_K10 wrote: »

After all the complaining about the strange carying rates, a notice has just appeared stating that the FA has now, as a gesture of goodwill, agreed to cap the charges for transferring the pensions to £500. Now, Person E who was due to pay £1300 is happy.....but wants to know why the FA has done this?

Because a capped amount beats nothing and the IFA can see the writing on the wall.

Informed consumers who know that they can simply transfer themselves and still get the employer contributions into the SL make it harder to charge more than could be charged. Those with the larger pots are the ones with the most to gain from not paying a percentage, so if a cap causes them to buy the transfer service from this IFA instead of none or another one, it's a good deal for this IFA compared to nothing.

jamesd

KFCMike wrote: »

I thought adviser charging on AE compliant contracts was or is going to be banned so that the employer carries the cost not the employee

Not all adviser charging, just consultancy cost charging.

The adviser can charge the employees for the service of transferring a pension, but not for the cost of advising the employer which pension to use or assorted other costs for other benefits analysis that might previously have been passed on to employees. The transfer work isn't setting up an auto-enrolment pension.

KFCMike

jamesd wrote: »

Not all adviser charging, just consultancy cost charging.

The adviser can charge the employees for the service of transferring a pension, but not for the cost of advising the employer which pension to use or assorted other costs for other benefits analysis that might previously have been passed on to employees. The transfer work isn't setting up an auto-enrolment pension.

Thanks

Bit of a cop out then isn't it? The adviser can just charge more for the transfer and continue on as normal.

Special_K10

Thanks for that.

I'm still confused why his tiered charging process was so random between Persons A, B and C, though?

sandsy

How long do Persons A, B and C have to retirement?
Are there any on ongoing advice and charges happening?

jamesd

KFCMike wrote: »

Bit of a cop out then isn't it? The adviser can just charge more for the transfer and continue on as normal.

But the employers aren't forced to pay that to get the employer contributions, they can buy that service elsewhere if they like. They are coerced if it's a consultancy charge added to the auto-enrolment pension charging.

Special_K10

Thank you again. Excellent point, Person C is only 7 years away from retirement whereas A and B are a good 30 years.

However, a friend claims that a FA told him that whether a person is 7 years or 35 years away from retirement, the costs would still be the same?

dunstonh

Under advice, the adviser has to justify the transfer. It cant just be done with no justification. As you get closer to retirement, the impact of initial advice charges is greater. So, if the transition to the new scheme was agreed with the employer that that no-one would be worse off and everyone would get lower charges, then a reduction for those closer to retirement would be required.

However, a friend claims that a FA told him that whether a person is 7 years or 35 years away from retirement, the costs would still be the same?

The adviser charge may be the same but the comparison has to include the adviser charge. Taking one step back to take two forward only works if you have enough space to take those two steps.

Special_K10

Well now, there are two interesting developments:
1. The IFA has now told everyone that the employer has now agreed to contribute to SW for those that wish to stay with them (and the vast majority will stay as they "Do not see the point" in paying the £500 transfer fee).

2. Whilst my friend, who is 7 years away from retiring, was discussing his pension with the IFA, the IFA said to him "Come to me when you buy an annuity and I will look at twenty of the deals and get you the best one", with no mention of charging him a fee.

I would like to ask:
Why would the employer now agree to contribute to them, apparently, poorer value SW pension?
Why, if I may ask, did you say you'd pick SL over SW every time?
Shouldn't the IFA have said how he would search the WHOLE market for the best deal and that he'll charge a fee for it?