Pension charges

windmillbank

Hello All

I have been talking to a pension adviser about my 2 personal pensions, he has suggested combining both pensions and then setting up a drawdown pension, his charges are 3% of the total transfer value, which equals approx £7,700 and a yearly fee of 0.5%.

I have only spoken to 1 adviser, but i wanted to know if this is a typical charge for setting up the new pension etc.

JoeCrystal

Sound expensive, to be honest. Have you checked that he is an IFA?

windmillbank

Yes i have checked, and got his FCA number and website.

Alexland

Is there anything special about the existing pensions that could be causing the high setup fee - are they defined benefit, have guaranteed annuity rates, etc? If not then a 3% setup fee on £250k sounds unnecessary. The 0.5% ongoing is fair value. They might be willing to waive or reduce the setup fee if challenged. Worth shopping around and checking you are always dealing with someone who is an independent financial advisor.

aerostar

It took months to sort my 2 pensions out that dated back to the 70s to get them combined and then random drawdown..

Start the ball rolling in this financial year, so if there are any holdups you should get it sorted this financial year instead of rolling on to next.

Watch out for when you draw down as I got stuck with a 40% tax due to the fact I withdrew a large amount as a one off, and according to HMRC they take it that this is going to be a MONTHLY payment ! I was not warned about that by financial advisor or the fund holders who should have known about it, Martin did, and warned about that as I found out later. Take an initial small amount so that when multiplied by 12 does not put you into the 40% rate but also take your state pension into this calculation.

Also if you want to do draw down very close to the end of the financial year, beware as Zurich start their financial year a few days before April 6th !! not sure of the legality of that !

Don't forget that the fund also charges as well.

I think the charges are FAR too high - money for old rope - and there is not much you can do about it as the fund holders will not apparently deal with Joe Public.

Albermarle

his charges are 3% of the total transfer value, which equals approx £7,700

If the two pensions are normal DC pots , then you easily combine them into a new pension offering drawdown facilities yourself . Would take about half an hour on line with zero cost ( in fact there are even cashback deals )
The only issue would be choosing the investments in the new pension but you could research that whilst waiting for the transfers to happen ( 2 days to a few weeks normally ).
However as said above, if the existing pots had some special features /guaranteed benefits you will need the advisor but find one that is cheaper !

nigelbb

aerostar wrote: »

Watch out for when you draw down as I got stuck with a 40% tax due to the fact I withdrew a large amount as a one off, and according to HMRC they take it that this is going to be a MONTHLY payment ! I was not warned about that by financial advisor or the fund holders who should have known about it, Martin did, and warned about that as I found out later. Take an initial small amount so that when multiplied by 12 does not put you into the 40% rate but also take your state pension into this calculation.

My partner just got caught for this when she cashed in part of a pension. She wanted to withdraw £50K & calculated correctly that she needed to make two smaller withdrawals in separate tax years to avoid 40% tax but was hit by 40% tax anyway.

In fact the calculation is more complicated than just being hit with 40% income tax. The pension provider takes income tax using an an emergency PAYE code. With the emergency PAYE code they assume that this is your first monthly payment so they will:-
1) take off £1042 from the payment which is not taxed (1/12 of the standard personal allowance of £12,500)
2) tax the next £3125 at 20% (1/12 of the basic rate tax band of £37,500)
3) tax the next £9375 at 40% (1/12 of the higher rate tax band of £112,500)
4) Any remaining amount above £13542 is taxed at 45%

To reclaim the excess tax paid there are different forms to use depending on the circumstance e.g. if you have only taken part of your money out of a pension pot & you will not take another cash payment from the pension pot before the end of the tax year you claim a tax refund using form P55.

SonOf

I have been talking to a pension adviser about my 2 personal pensions, he has suggested combining both pensions and then setting up a drawdown pension, his charges are 3% of the total transfer value, which equals approx £7,700 and a yearly fee of 0.5%.

The ongoing 0.5% is fine. That is the most common level. The 3% totalling £7700 is high. A third of that would be the target.

£7700 is the figure you would expect on pensions that are defined benfit or have safeguarded benefits. Not on typical personal pensions.

squirrelpie

What does the 0.5% buy you? Is it for management of the investments? Is it a platform fee? Is it for the charges of the investments themselves? Decide what you need and ask what the total charges will be.

windmillbank

Thanks for all of the replies, i asked him about his 3% charge and he said he normally charges 4%, but because my pot is quite large he reduced it by a percent.

i think i need to shop around to see what a typical charge would be.

campbell19925

windmillbank wrote: »

Thanks for all of the replies, i asked him about his 3% charge and he said he normally charges 4%, but because my pot is quite large he reduced it by a percent.

i think i need to shop around to see what a typical charge would be.

I'd say 3% is a fair price certainly nothing out of the ordinary, sorry - probably towards the medium-high side.

For comparison, SJP charge 4.5% upfront and 1.5% ongoing. Then you are tied into a contract for 6 years and have additional fund and platform charges.

0.5% per annum for ongoing advice is cheap relative to the market.