Work place DC Pension Transfer

Employee123

I am currently enrolled in workplace dc pension scheme which I have been paying into for 12 years with Aegon. As I understand each month my contribution is used to purchase units which will fluctuate in amount based on the stock market and other investments values at that time. From my contributions I have a pension pot of £350k which is made up of the purchases made over the last 12 years.

My employer is changing pension provider to a Scottish Widows Master Trust Workplace Pension Scheme, as part of this arrangement my pension will automatically transfer in Feb 2023 subject to approval from the current retirement plan trustees.

I am assuming that the lump sum transfer will then buy Scottish Widows units at current market price so I will not benefit from the swings in the investments from my monthly contributions to Aegon over the years.

Are there any risks I need to be aware with regards to this transfer?

Albermarle

I think as a first step you need to increase your knowledge of how your money in invested within a pension. Especially as £350K is a considerable amount and growing.
Virtually all pensions have a choice of investment funds that can be held within the pension. For example some will be more aimed at high growth, some maybe more UK orientated, some aimed at people nearer retirement etc.
With a workplace pension, many people do not realise they have a choice, or are not interested. In this case your money is invested in a default fund, which tend to be middle of the road type funds.
Each providers default fund is different, so the SW one will be different from the Aegon one. Not dramatically different but different all the same.
Sometimes the default is a so called lifestyling arrangement. This changes the balance on investments within the fund, as you get older. This can be a good or not so good arrangement.
You should have on line access to the Aegon pension, so have a look at how it is invested, if you have not already done so.

Marcon

Employee123 said:

I am currently enrolled in workplace dc pension scheme which I have been paying into for 12 years with Aegon. As I understand each month my contribution is used to purchase units which will fluctuate in amount based on the stock market and other investments values at that time. From my contributions I have a pension pot of £350k which is made up of the purchases made over the last 12 years.

My employer is changing pension provider to a Scottish Widows Master Trust Workplace Pension Scheme, as part of this arrangement my pension will automatically transfer in Feb 2023 subject to approval from the current retirement plan trustees.

I am assuming that the lump sum transfer will then buy Scottish Widows units at current market price so I will not benefit from the swings in the investments from my monthly contributions to Aegon over the years.

Are there any risks I need to be aware with regards to this transfer?

I'd expect your employer to ensure that you receive plenty of relevant information about this. Have you actually read through what you've already been sent (there might be quite a lot of it, so possibly it hasn't been top of your reading pile!)?

Pat38493

Employee123 said:

I am assuming that the lump sum transfer will then buy Scottish Widows units at current market price so I will not benefit from the swings in the investments from my monthly contributions to Aegon over the years.

Are there any risks I need to be aware with regards to this transfer?

If you are concerned, you can speak to one of the trustees of the current arrangement?

I am not sure exactly what you mean by the point in bold above, but whatever the value of your Aegon fund is, would then be used to purchase SW funds at the current price at the time of transfer, so the changes in value of your fund in the past would all be included.

Theoretically if the default fund that they are using with SW has the exact same mix of investments as the Aegon one, there will be no impact whatsoever (unless there are charges going to you for the transfer which I doubt if it's an employer transfer).

To put it another way, if the markets are really low at the point of transfer, this shouldn't matter that much because even though your Aegon fund is worth less, you will be able to buy more units of the new fund as their price will be lower as well.

The only problem would come is if the fund they are moving you to has a dramatically different mix of investments and that's where there could be a potential to lock in losses.  However, as said above employer's would normally pick "middle of the road" type funds so this is unlikely.

I have been in this situation a few times and generally I took the view that if the trustees were happy with it then it was probably ok for me too.

The other question you could be asking is around charges - often when companies do this type of thing it's to put more of the risk (and charges) onto the employee.  Sadly, here's probably not much you can do about it anyway.

[Deleted User]

In a nutshell, the change will be neutral for you. But like Albermarle said,  you should have a look at the funds you own and the options that will become available to you. 350K is well worth a little effort on your part. 

In general, you should select asset allocation and investment strategy and then pick the funds so that underlying securities match your strategy. 

gm0

Other things

The communications about a proposed scheme move can be a bit frustrating. Targeted at employees with a long period of accumulation still to go. No pre-launch rush to deliver details.  Which become real (and ready to communicate) only when the contracts are actually signed and the trustee approval of that has formally happened. It would be a foolish trustee or pensions admin who leaked draft information ahead - whatever the good rationalisation / intentions were - could then be misinterpreted and complained about later when it then changed.

Focus is often on trying to grab attention onto the new launch and to drive member engagment with it, the scheme and any credentials setup admin that needs to happen.

As a result full details often turn up *after* the transfer migration in a welcome pack/access to a new web site.

But sometimes there is a quiet period on switching and actions before transfer to simplify a migration by minimising other transactions in flight bar monthly payroll contributions. Warnings about deadlines for switches and such like could happen. 

If you contact the old admin (Aegon) and ask about SW they will likely stonewall as not privy nor responsible for what will happen at SW.  If you call SW too early - you are not a customer yet - and they will have a strong allergic reaction in their call centre about talking to people who are going to be but are not yet identifiably customers. Without scheme info or data and documentation loaded yet.

Once the transfer noise subsides the change to a master trust is quite likely to be beneficial overall. 

Likely to have drawdown features attached for scheme members to optionally use later rather than expecting everyone to transfer out somewhere else.  Disappointing if not.  Many modern master trusts are being offered to trustees to migrate to alongside transfer of scheme admin contracts. Adding pension freedoms and other modernisation items.  Life company digital can be a bit - variable.  Some may be good, some very 1990s

I went through this process 2020/21.  Our web site got slightly worse with the move which was disappointing.  But the fund selection got better.  Drawdown was added to the scheme at an attractive price.  A mixed bag.

When your SW communications arrive - look at your new scheme costs ( the SIPP platform cost equivalent ) and the fund range and their various costs.  And drawdown for later.  It will be good/bad/indifferent depending upon the scheme admin contract now struck with SW by your trustees.

At this stage you need to understand what you are invested in now and what the "default" is that you will be moved to based on that.  And decide if that is what you want or whether now is the time to review and change which SW funds you use.

Trusting soul that I am -  I made sure I logged in on the last pre-migration opportunity and took a snapshot of unit quantities and unit prices that day and printed it out.  With a view to keeping an eye on what turned up the other end and being confident that they had indeed not only migrated everything overall and had it add up.  But had actually migrated my holdings broadly correctly.

Transfer of membership history is also prone to be a patchy topic. You may wish to download what you particularly want from Aegon if anything is visible there that you think you may want to reference later.

Where relevant it is why to check that beneficiary info, contact addresses (can get mangled) are all OK post conversion.  The minority who have registered protection certificates may also sensibly check this info makes it back onto their records.