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Transfer to SIPP to save on management fee?

I have built up about £300K in a Scottish Equitable (now Aegon) pension plan, I'm no longer paying into the plan and don't need the pension money for 10 years or so but thinking of transferring this to a SIPP perhaps with AJ Bell or similar.

The pension fund has a 1% management charge which (if I understand correctly) has been initially offset by a 101.25% "allocation rate", but presumably is now incurring about £3000 per year. If I move to say an AJ Bell SIPP and choose a couple of low cost tracking ETFs with management charges of less than 0.1% I think the overall management fee (including AJ Bell's SIPP fee) could be £400 or so i.e. saving over £2500. Not sure if Aegon will incur a transfer fee, but am I missing anything else?

The current fund doesn't seem to have performed badly in the long run - their factsheet shows 9.5% annualised performance net of charges over the 10 years to Dec 2018, compared to FTSE All Share performance of 9.1% - but not so good over recent shorter periods e.g. -2.0% over 3 years compared to all share benchmark 6.1%
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Comments

  • dunstonh
    dunstonh Posts: 120,201 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The pension fund has a 1% management charge which (if I understand correctly) has been initially offset by a 101.25% "allocation rate", but presumably is now incurring about £3000 per year.

    Have they confirmed 1% or are you just looking at the fund factsheet? An awful lot of old Scot Eq plans have fund based discounts which bring the default 1% down. Often very low. We frequently see Aegon plans with total charges of 0.3% p.a.
    The current fund doesn't seem to have performed badly in the long run - their factsheet shows 9.5% annualised performance net of charges over the 10 years to Dec 2018, compared to FTSE All Share performance of 9.1% - but not so good over recent shorter periods e.g. -2.0% over 3 years compared to all share benchmark 6.1%

    Is the current fund benchmarked against the FTSE all share or is that what you have selected? (its an unusual benchmark to see unless it is a UK equity fund).

    ETFs have no FSCS protection. Pension funds have 100% FSCS protection with no upper limit.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Albermarle
    Albermarle Posts: 28,986 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    As Dunston says you should first get some full clarity about the current charges, and to do this you will be best to call them directly. As an example I had/have two ex workplace pensions , similar to yours. With one there was no charge for the actual pension but the funds all cost a minimum of 1%. For the other there was a 1 % charge for the pension and most of the funds had zero charge . With more digging I found one benefited from a 0.5% discount negotiated by my ex employer ( the other one didn't)
    Second point is that comparing the Aegon fund, which is probably some kind of medium risk/multi asset/default fund, with ETF's is not comparing like with like. An ETF will normally be subject to much more volatility and potentially greater gains and more importantly losses. AJ Bell will have something similar to your Aegon fund but it will cost more than 0.1%.
  • dunstonh wrote: »
    ETFs have no FSCS protection. Pension funds have 100% FSCS protection with no upper limit.

    FSCS applies to financial advice and investment firms. It does not apply to shares or indices of shares going down in value. This is the same whether one holds a mutual fund in a pension or an index of shares via a plain vanilla ETF in a SIPP.

    FSCS Protection is provided if a company gave misleading advice or provided poor investment management. If someone is buying an index tracking ETF they are protected against poor management by the nature of it being an index tracker and regulations, which require providers to be transparent with their holdings (published every day).

    One of the key benefits of ETFs is that they offer better transparency into their holdings than competing mutual funds. Most mutual funds don’t publish information on securities they hold every day, which opens the possibility of mismanagement.

    If you buy exchange-traded funds you need to do your homework and evaluate them properly, e g generally it’s a good idea to avoid leveraging or swaps unless you really know what you are doing.
  • Mike_FS
    Mike_FS Posts: 15 Forumite
    Fourth Anniversary 10 Posts
    dunstonh wrote: »
    Have they confirmed 1% or are you just looking at the fund factsheet? An awful lot of old Scot Eq plans have fund based discounts which bring the default 1% down. Often very low. We frequently see Aegon plans with total charges of 0.3% p.a.

    The fund factsheet says 1% and my last two statements show a management charge which seems to be at least 1%. I think it is 1% plus a £5.95 "membership charge".

    Checking my contributions on line it looks like the allocation rate is actually 105.27%, so I paid in £300 and they allocated 309.86 (i.e. the 105.27% less the £5.95 charge). It's not obvious how the main 1% fee is taken out but it's definitely shown as about £3K on the statement.
  • Albermarle
    Albermarle Posts: 28,986 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    so I paid in £300 and they allocated 309.86 (i.e. the 105.27% less the £5.95 charge).
    If this is true , then sounds like a very good deal !
  • Mike_FS
    Mike_FS Posts: 15 Forumite
    Fourth Anniversary 10 Posts
    dunstonh wrote: »
    Is the current fund benchmarked against the FTSE all share or is that what you have selected? (its an unusual benchmark to see unless it is a UK equity fund).

    Yes it seems to be benchmarked against FTSE ALL Share - the factsheet gives the sector as ABI UK All Companies. The fund itself is Scottish Equitable Ethical - GB0007845422
  • Mike_FS
    Mike_FS Posts: 15 Forumite
    Fourth Anniversary 10 Posts
    Albermarle wrote: »
    If this is true , then sounds like a very good deal !

    It looks good except (a) I won't be paying in any more and (b) there is still the annual 1% i.e. £3K charge...
  • dunstonh
    dunstonh Posts: 120,201 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    FSCS applies to financial advice and investment firms. It does not apply to shares or indices of shares going down in value. This is the same whether one holds a mutual fund in a

    And life funds and pension funds (100% of value) and UT/OEICs (to £85k per fund house). But nothing to ETFs.
    FSCS Protection is provided if a company gave misleading advice or provided poor investment management.

    Poor investment management is not necessarily covered. You missed off fraud, mistakes leading to investment fund going insolvent or the fund house going insolvent.

    It is questionable how much of a benefit FSCS protection will be in the case of unit-linked funds. However, there have been several failures in the last decade. Although none were mainstream. If the OP avoids synthetic replication, then chance of ever needing to call on the FSCS is highly unlikely but that is a risk decision for the individual to decide.
    The fund factsheet says 1% and my last two statements show a management charge which seems to be at least 1%. I think it is 1% plus a £5.95 "membership charge".

    Ignore the fund factsheet. it always gives the default, not the actual you may be paying.

    Multi-charge plans can be a bit of a pain to calculate. I am actually doing an Aegon transfer out at the moment and it has 100% allocation but a 4% bonus in year 10 followed by an annual bonus of 0.5%. It too says the AMC is 1.0% but those bonuses give a different net outcome. I also looked at the last statement issued and it didnt show anything about the bonus but said the AMC was 1.0%. Aegon supplied the full details after I asked them.

    Legacy plans are not as transparent as modern plans but it doesnt mean you are worse off. Many are improved upon by moving to modern plans but some old plans can be very low cost or have valuable benefits you cant get on modern plans. So,dont assume on the charge. Check it with Aegon to make sure. Better to be safe than sorry.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Albermarle
    Albermarle Posts: 28,986 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    The fund itself is Scottish Equitable Ethical - GB0007845422
    The performance of this fund does not look so good, especially over the last 12 months , even taking into account the general negative market conditions.
    Probably if you held a similar type of fund with AJ Bell , then the total cost would be similar to the 1% you pay now .
    However as you originally said by switching you can then access much lower charging ( but riskier ) ETF's/tracker funds. If you do switch then maybe worth considering not putting the whole £300K into potentially volatile investments , like ETFs. For a small increase in charges you could invest in passive multi asset funds as well. These would be less risky.
  • dunstonh
    dunstonh Posts: 120,201 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    It is worth noting that Ethical funds will have periods of outperformance and underperformance relative to a generic benchmark. It largely comes down to the ethics of the funds and the industries they invest in and the ones they avoid. if the ones they avoid have a good period, they tend to lag. If the ones they invest in have a good period, they perform better.

    There is a generic risk warning with Ethical funds that performance over the long term may be lower due to the restrictions being placed on the investment selection. If you were an ethical investor though, you are much better served with choice using UT/OEIC funds than you are with pension funds.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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