pension transfer critical yields and costs

shadowdog

looking to transfer existing pensions to one account to gain flexible access drawdown and flexible death benefits but costs and charges( as below )seem too outweigh this decision.

average existing pension charges total: 0.5%

The IFA recommended pension would be to reduce fund value by 1.6% ( ongoing advice fees and costs) if transferred resulting in a critical yield of 1.13% ( what new fund will need to cover extra cost per annum to achieve existing fund value to retirement date) .

Any advice would be appreciated

dunstonh

1.6% ongoing is not particularly high if you are using an adviser.   The adviser can do it cheaper if you give them that instruction (e.g. instruct them to invest only in passive funds instead of active or hybrid and don't give any ethical/ESG preferences).

You dont mention the amount but the ongoing advice costs tend to fall with higher values and are higher with lower ones. 

shadowdog

dunstonh said:

1.6% ongoing is not particularly high if you are using an adviser.   The adviser can do it cheaper if you give them that instruction (e.g. instruct them to invest only in passive funds instead of active or hybrid and don't give any ethical/ESG preferences).

You dont mention the amount but the ongoing advice costs tend to fall with higher values and are higher with lower ones. 

Total pensions amount is £108000 to be transferred with ongoing costs of 1.6 %  which DOES not include IFA  initial fee of £3000. I fail to see with these extra costs and the fact that the new fund will have to achieve a critical yield of 1.12% PA to break even the benefit of transferring these pensions?

dunstonh

Total pensions amount is £108000 to be transferred with ongoing costs of 1.6 %  which DOES not include IFA  initial fee of £3000.

In IFA terms, £108k is low.  So, an ongoing charge of up to 1% would be typical.   

 I fail to see with these extra costs and the fact that the new fund will have to achieve a critical yield of 1.12% PA to break even the benefit of transferring these pensions?

You haven't mentioned the investments but if it's a medium risk spread you are looking at a long term average of around 5-6% after charges.   So, what is it that you are seeing that makes you think that is not achievable?

shadowdog

in IFA terms, £108k is low.  So, an ongoing charge of up to 1% would be typical.   

Agreed 108k is low but ongoing costs @ 1.6% PA is high ( not including initial finance review)

You haven't mentioned the investments but if it's a medium risk spread you are looking at a long term average of around 5-6% after charges.   So, what is it that you are seeing that makes you think that is not achievable?

my IFA states on average the recommended investment strategy has performed better than existing by 3% ( performance only) and one other consideration is that one of my pensions is with profits? 

dunstonh

Agreed 108k is low but ongoing costs @ 1.6% PA is high ( not including initial finance review)

No, its not high.   You haven't broken it down but ballpark would be
platform around 0.25%
Funds anything from 0.1% for a passive portfolio to 0.8% for fully active with hybrid in between
Adviser charge anything from 0.50% to 1.00% with closer to 1% being typical for £100k

 my IFA states on average the recommended investment strategy has performed better than existing by 3% ( performance only) and one other consideration is that one of my pensions is with profits? 

Is it going into the WP fund?    I would use a lower rate when projecting on that. But I would be surprised to see that being used.

Context on the figures is needed. i.e. net of inflation?   net of charges?   3% is low when you consider medium risk after charges is typically around 5-7%.  So, are you a cautious investor that uses more low risk/low return assets?