Group Company Pensions

reubenpeckham

Hi

I don't know if anyone can help with this.  My curiosity has been roused from reading some posts on another thread, however, I thought it worthwhile to start a new thread for this.

My company has recently changed company pension provider from Legal and General to Scottish Equitable.

The management charges with L&G were 0.6% and these have increase to 1% with SE.  The reason cited for the change was poor customer service from L&G- which to be fair was very bad.

My concern, however, relates to the advice given to the company.  The company was advised by an IFA who received commission from each and every SE pension taken out.  In my case this commission was worth about £1,500- the company employs 1000+ people and hence it would appear that the IFA has made £1m+ in commission from this exercise- for what would appear to be only a few weeks of work.  In addition there is ongoing commission, which will be in the region of £100k + per year.

I can see no reason why my company would wish to change- the L&G pensions were performing well and there was apparently no financial interest to my company in changing- until I read that some financial advisors will pay a percentage of their commission received back to the employing company.

Does anyone have any experience of this- is it a common practice and are there any legal connotations- for example, should we be informed if the IFA choses to repay some of the commission back to the directors?  As I have said I have no direct evidence of any of this, but we were all suspicious as to why our company would wish to change our pension provider with no obvious incentive to them.

Many thanks, in anticipation.

Pal

This is a really complicated one. It is a big accusation with no evidence but I can see why you are concerned.

Moving from L&G because the admin is bad is reasonable if the bad admin was costing people money (e.g. late payment of pensions, late investment of contributions and so on). Otherwise it is a fairly poor excuse if the available funds were doing OK. My limited knowledge of Scottish Equitable is that their admin is also crap, but I may well be misinformed on that one.

I will leave it to the IFAs to comment on whether any kickbacks were likely to have been paid, but my immediate reaction is that it is only an issue if it resulted in the advice provided being biased, and there is no way to comment on that.

Did Alexander Forbes provide you with any financial advice when you signed up for the policy? Are they providing you with ongoing financial advice on the policy? If not you might be able to "repension" using an execution only adviser and have the commission clawed back into the personal pension policy. See Martin's article on the main site for more details or alternatively pick up a little known financial manual called "The Money Diet". (Ignore the rubbish title, the book is quite good as long as you don't want too much detail. )

Finally, remember that you do not need to transfer your L&G personal pension into the new one. You could leave it behind and just start a new policy with Scottish Equitable.

dunstonh

Not going to comment on whether it is right or wrong as there isnt enough to know.

Scottish Equitable commission on the transfer values is around 4.5%.  Although this could be altered for different IFAs and size of the scheme.   If trail commission is taken (ie annual renewals) there would be no initial commission.  Although you can take less renewals and a little up front but usually it isnt worth it. I would say most IFAs would go for trail fees as it provides an annual income to the firm which will help cover future admin. It also sets them up nicely for an annual income. If taken all in one year, the tax implications would be higher and the income would be far lower in the long term.  

Scottish Equitable administration is worse than Legal & General in my experience although research officially provided shows L&G are rated 3 out of 5 and scot Eq 4 out of 5.

L&G has very good funds and some of the lowest charges around (matched by Norwich Union and Clerical Medical).  

There is work involved by business owners on something like this and it is fairly normal to provide the company with some benefit to them.  Otherwise why would they waste their time?  This can either be a commission rebate to the company or an introducers fee paid to the owner/directors.  Good companies will often arrange rebates into the plan.

You have little say in this as its up to the company what they offer.  

reubenpeckham

I should clarify that at the moment we have not had the option to transfer the L&G pension to Scot Equitable. The commission relates to the provision of a new pension only (and advice at corporate level).

Pal

There is work involved by business owners on something like this and it is fairly normal to provide the company with some benefit to them.  Otherwise why would they waste their time?  This can either be a commission rebate to the company or an introducers fee paid to the owner/directors.  Good companies will often arrange rebates into the plan.

In my experience kickbacks to the companies concerned are non-existant. I have never come across one. Although that might say more about the type of companies I advise than the market in general. Most will sort this out for nothing (or even pay fees to someone like me to get it sorted out) to make sure that their employees are getting a reasonable benefit. After all, if it all goes wrong the employee is going to start complaining to the company which doesn't help their employee relations very much.

Debt_Free_Chick

IIRC, the IFA involved (AF) has a special deal with Scot Eq. AF undertake the administration I believe.

Essentially, this means that you are indirectly paying for what ought to be better administration. Remember, though, that some of the commission relates to the employer's contribution. Arguably, if the employer paid AF to administer the scheme, then their contribution to your pension pot would be lower.

Also, commission was presumably being paid on the L&G contracts. In this case, then someone was getting paid without being able to improve the administration. Perhaps this is a case of getting a better service, but having to pay for it.

Are the funds identical? Most of the L&G funds are index trackers, so charges do tend to be lower. Are the Standard Life funds also trackers, or actively managed funds. The stats don't always back this up, but the theory is that you pay the extra to the manager to beat the index (if only!)

dunstonh

Are the funds identical? Most of the L&G funds are index trackers, so charges do tend to be lower. Are the Standard Life funds also trackers, or actively managed funds. The stats don't always back this up, but the theory is that you pay the extra to the manager to beat the index (if only!)

There are exceptions to the rule. However, last year standard & poors did some research that showed that in general the higher charged funds from the professional fund managers performed better than insurance company funds.

You shouldnt really be placing all your pension in one fund anyway. A spread over a couple of areas is common sense. Asset allocation over the areas is more important than trying to pick what you think is the one best fund.

Pal

There are exceptions to the rule.  However, last year standard & poors did some research that showed that in general the higher charged funds from the professional fund managers performed better than insurance company funds.

But this is nothing to do with the fees being charged. It is because insurance companies are generally crap at active management.

Even then, it is purely a matter of luck as the statistics only prove that on average professional fund managers outperform insurance companies, but that doesn't mean that all fund managers outperform. Picking a professional manager who will outperform in the future is still entirely a matter of luck for just about everyone.