Partial transfer between two DC pensions

bjt42

Hi,

I am contributing to two different DC pension plans at the moment:

A personal pension that enjoys low AMCs of ~0.2% on the default managed fund.
A workplace pension that has higher AMCs (still under 1% though) and I can pay into using salary sacrifice and receive employer NI uplift.

The vast majority of my contributions are currently to the workplace scheme. I was planning to periodically transfer most of that pot to the personal pension where it can enjoy lower fees for the long term. I have no reason to believe investment performance will be any different between the two pensions.

However, when I mentioned my intentions to the IFA who acts as the workplace scheme broker for my employer, I was basically told it was a bad idea and asking for trouble due to administrative errors etc. that might happen during the transfer.

Now I have executed a pension transfer before and it was a fairly slow and painful experience, but I felt that the IFA wasn't really being honest about their real motivations. Presumably their commission will be based on uptake of the employer scheme. The difference in fee levels may be small but over decades it will make a difference.

Would be grateful for any input re this partial transfer strategy and whether it's something that's frowned upon by IFAs or pension scheme administrators.

dunstonh

Now I have executed a pension transfer before and it was a fairly slow and painful experience, but I felt that the IFA wasn't really being honest about their real motivations. Presumably their commission will be based on uptake of the employer scheme. The difference in fee levels may be small but over decades it will make a difference.

Not all schemes support partial transfers. So, if that is the case here, you would have to transfer the current work scheme, opt out until it is transferred. Then opt back in again (and you may have to wait for defined dates for that to happen and miss employer contributions).

it is a admin pain the neck but it wouldnt be the workplace IFA that suffers the admin as the receiving scheme controls the transfer admin. Although they would suffer the work in opting you back in again and setting you back up (and if the employer isnt paying them explicitly, they wont effectively be paid by you for doing this).

So, technically possible but with a few potential issues that could arise and the possibility of ending up worse off in the short term if you miss some monthly contributions from the employer.

bjt42

Thanks for the info. re support for partial transfers, I was told explicitly that they were supported by the workplace scheme.

Just trying to work out why the workplace IFA was so against it. The phrase "You will make me hate you if you do that" was used, half jokingly!

I might do it anyway, because I'm awkward like that. Every few years would surely be reasonable.

dunstonh

Probably a mixture of him having to do extra work and getting paid less as that is the only real issue if partial is supported.

Malthusian

Being out of the market at the wrong time could easily wipe out the (likely small) savings you will make from the difference in charges.

Or it could of course be a blessing as the market might fall while your partial transfer is out of it. It's impossible to know. However, equities rise in value over the long term so on average, being out of the market will cost you.

It strikes me as likely to be more trouble than it is actually worth.

The IFA's attitude may be self-serving but it is not, in my experience, entirely groundless. Partial transfers are unusual and mistakes in the field of pensions administration are very common, and something unusual is even more likely to be fouled up. For example, the person dealing with the admin will probably never have pressed the "partial transfer" button in their life and may press the "full transfer" button on autopilot, which could lead to all sorts of pains in the neck. I'm being deliberately pessimistic and cynical, but it's wise never to underestimate the incompetence of pension companies, and that's why it seems more trouble than it's worth.

bjt42

Agree that being out of the market, even for a couple of days, carries some risk.
Re potential for error, no doubt there is some. Ridiculous really, it should be a trivial operation. Lack of transparency means that errors will tend to go undetected as well.

Over a 25 year timeframe, even a small differential in charges adds up. Eg £500/month over 25 years at 5% will be worth £20k more than at 4.5%.

Malthusian

True, but if you don't transfer these partial funds now, will they actually remain in the higher-charging scheme for 25 years? In three years' time you might have a new job, at which point you would most likely do a full transfer to the personal pension. So it is not 25 years' difference in charges you are saving yourself but an unknown length of time between now and the point at which you would do a full transfer anyway.

A mere few years' difference in charges may easily be wiped out by a few good days in the stockmarket while you are out of it, such as we had at the beginning of October.

bjt42

All good points. Thanks for the input.