Royal London high fees - switch every year?

Yparchedig

Hi all,

My workplace pension is with Royal London and I contribute 12.9% of my wage through a salary sacrifice scheme with my employer contributing 3%.

The reason for the high contribution is that I was late to the pension party as I'm now 26 and only just in work after too long in university!

I was gobsmacked with the managed funds that Royal London invested me in automatically with fees for some at 2%. On top of this, most were underperforming their benchmarks.

Less than impressed I switched my fund using the Royal London online portal to the lowest fee tracker they had which was US Index at 1%. Emerging markets, China e.t.c had 2% fees so I didn't diversify.

My question is, could I switch my pension every year to the Vanguard SIPP once it opens and benefit from the much more sensible fees and wider range of funds?

Thanks in advance,
Lewys

JoeCrystal

That is odd. I think you need to double check since the maximum default auto enrollment fund charge is 0.75%

Albermarle

Your employer will most likely be unwilling to deal with another pension provider ( due to increased admin etc )
What you could do is transfer out money at intervals from RL to a new provider , if it is allowed ( usually it is )
However before you do anything you should call RL directly to double check the charges , as they seem very high . Often workplace pensions have a discount that is not immediately obvious from the paperwork .
If you do in the end open a new pension , there are many to choose from , not just Vanguard, which is not even open for business and will be restricted on what investments will be available.

cloud_dog

OP, you are talking about the option of undertaking a 'Partial Pension Transfer'.

The OH has a work pension with RL and I was enquiring as to charges and TBH I didn't get the feeling they were keen to discuss things with an individual (as opposed to an advisor).

SonOf

I was gobsmacked with the managed funds that Royal London invested me in automatically with fees for some at 2%. On top of this, most were underperforming their benchmarks.

This seems unlikely. It looks like you have misread the information as Royal London internal funds are 1% as default prior to any fund based discounts and the 0.75% p.a. auto-enrolment cap.

Remember, you must not look at the fund factsheet for the charges as they will be the maximum default. Not the actual amount you are paying.

Most RL auto-enrolmment pensions I see are between 0.45% and 0.75% p.a. for internal funds. Some will offer external funds at higher cost (as they dont need to meet the AE restriction) but the average portfolio wont use those and even when people do, they tend to only do so with a small part of their portfolio. e.g. Emerging Markets may be less than 5% of their spread.

On top of this, most were underperforming their benchmarks.

Again, that does not reflect the actual position of most of their funds. Most are generally around benchmark but many of RL's funds are more defensive than the sector they are in. So, you largely have to disregard the benchmark and look at a comparable risk alternative. They do have some poor funds as well just like all fund houses.

Emerging markets, China e.t.c had 2% fees so I didn't diversify.

It is quite normal for higher risk funds in less developed markets to have higher charges. Lack of diversification can be far more costly than the fee differences.

JoeCrystal

cloud_dog wrote: »

OP, you are talking about the option of undertaking a 'Partial Pension Transfer'.

The OH has a work pension with RL, and I was enquiring as to charges, and TBH I didn't get the feeling they were keen to discuss things with an individual (as opposed to an advisor).

I have the same issue. Indeed, when I sent a letter with a cheque for a lump sum contribution a few years ago. I got it returned to me with a note to get in touch with my IFA to get a form! Which then my IFA got in touch with the RL to have a single lump-sum contribution form sent to me to fill out

Of course, their email system which you have to sign up to a provider to gain access to their secure email a few years ago as well (which may be no longer the case if I remember correctly)

[Deleted User]

I don’t know the answer to your specific questions, but agree with what you are trying to achieve. Any platform and fund costs are unacceptable if they are over 0.5% per year.

Agree that RL funds look bad, although others have a different view. Arguments on both sides can be found here:
https://forums.moneysavingexpert.com/discussion/6025961royal+london#topofpage

These funds appear overpriced, misrepresent level of risk and have underperformed benchmarks ever since they were set up after the last crisis.

When Vanguard SIPP opens it will indeed restrict investments to Vanguard products, but these provide a young investor with everything he needs and the overall costs are lower than the alternatives for relatively small portfolios. I do expect that other providers will start lowering costs ; this always happens after Van moves in.

If I were you, I would go to HR and check with them. If they can’t answer your questions they should be able to direct you.

Last but not least, don’t worry about being late. I started about the same age with zero for similar reasons. Now 25 years later, quite happy with the progress.

[Deleted User]

It is quite normal for higher risk funds in less developed markets to have higher charges. Lack of diversification can be far more costly than the fee differences.

One can invest in FTSE EM tracker funds holding over 5000 stocks for 0.1% total costs per year. Any fund charging 2% in today’s environment deserves to be deserted by investors,

Thrugelmir

Yparchedig wrote: »

Less than impressed I switched my fund using the Royal London online portal to the lowest fee tracker they had which was US Index at 1%. Emerging markets, China e.t.c had 2% fees so I didn't diversify.

Very different markets to invest in. Holding one fund isn't advisable. Diversification in a portfolio is key to longer term return.

ffacoffipawb

Yparchedig wrote: »

Hi all,

My workplace pension is with Royal London and I contribute 12.9% of my wage through a salary sacrifice scheme with my employer contributing 3%.

The reason for the high contribution is that I was late to the pension party as I'm now 26 and only just in work after too long in university!

I was gobsmacked with the managed funds that Royal London invested me in automatically with fees for some at 2%. On top of this, most were underperforming their benchmarks.

Less than impressed I switched my fund using the Royal London online portal to the lowest fee tracker they had which was US Index at 1%. Emerging markets, China e.t.c had 2% fees so I didn't diversify.

My question is, could I switch my pension every year to the Vanguard SIPP once it opens and benefit from the much more sensible fees and wider range of funds?

Thanks in advance,
Lewys

Don't the Welsh Church / Chapel Denominations have a defined benefit scheme?

Yparchedig

Hi all thanks for the replies,

Sorry if I was unclear in my original post but here's to clearing some things up.

I have gone back and double check the fees for the default managed portfolios and all are 1-2% as I noted but as mentioned by SonOf it's possible that this is because I am reading the factsheets and it's probable that there is a discount that brings the fees in line with the 0.75% default. Regardless, I wasn't impressed with the mix of funds selected by default.

In regards to SonOf's comment on benchmarks, fair enough if the benchmarks are not true reflections given the more defensive nature of RL's funds. I am 27 years old so am keen that I take on more risk at this stage and don't wish to be invested in defensive funds.

I think Cloud_dog is on the track of what I want to do. Essentially, I want to invest in the cheapest tracker available with RL for a period of say, one year, and then transfer everything invested at that point into Vanguards SIPP product (due to be launched). Where I can then invest the money in a series of diversified funds selected by me (I think this addresses your query Thurgelmir). The charges for these funds are far lower than what I could ever imagine RL's are even with discounts.

After this transfer, I would then invest via RL for another year in order to get my employer's contribution and make use of the benefits of salary sacrifice rather than the tax relief only available from opening a traditional SIPP (lower tax and Student Loan contributions). After a year I would then move this money once again to Vanguard, rinse and repeat.

In relation to your comment FfaCoffiPawb, my username is due to my 'preechy' nature and a nickname as opposed to a reference to me being an actual church minister.

Does anyone know whether making transfers like this is possible or does anyone have any experience of doing this?

Thanks,
Lewys