My company making me move pension providers

liverpoolcarl

Hi All,

I am currently a member of my company Group Personal Pension Scheme which is operated by an IFA and the pension scheme is with Clerical Medical.

My company tell me that Clerical Medical have closed there doors to new pensions and will not allow anymore premiums. Given that Clerical Medical have done this my company say the have been out to tender and have selected a new IFA who have selected Scottish Equitable.

My company will not pay into Clerical Medical if I don’t move so therefore forcing me over.

I have met with the new IFA yesterday and they say there will be no charges involved in the moved. The way it will work is my existing fund will become deferred, start contributing to the new scheme and then transfer my clerical medical pension over.

I currently pay 1.5% in charges and am invested as below:

UK Equity – 20%
European – 20%
North American – 20%
Property – 40%

Having spoken with the new IFA, he has told me the charges will be 1.5% for Scottish Equitable funds and no more than 2% for funds outside Scottish Equitable such as UBS, Invesco, Newton, Fidelity and JPM.

My new IFA will receive £600 for setting up the pension.

Having spoken with my IFA they say they will sit down with me every year to rebalance my portfolio and it is in there interest to achieve the most out of my pension as they are working on a percentage basis each year.

I am 27 years old, my fund value is £10k, the value was £9,800 last July, my contributions and employers with tax relief etc amount to £275.00 so its not doing great at the moment.

My questions are:

1) Are my company moving because its better/cheaper for them. (I have been told the old cost to my company is admin time in doing a pension scheme)?
2) Am I going to lose by transferring when my fund is down?
3) Is my split above ‘Balanced’?
4) Are Scottish Equitable better than Clerical Medical?
5) Have Clerical Medical really closed there doors?

Anything I have missed that you can think of would also be great?

dunstonh

My company tell me that Clerical Medical have closed there doors to new pensions and will not allow anymore premiums.

That is not true. February last year CM closed the doors to new group schemes but has continued to accept new members on existing schemes and continued to run existing schemes as per normal.

1) Are my company moving because its better/cheaper for them. (I have been told the old cost to my company is admin time in doing a pension scheme)?

Admin is the single biggest issue with group schemes. It is often the deciding point for employers to go with the one that suits their admin requirements. Cost will have little or nothing to do with it as the company will pay the same amount regardless of whom it goes to.

2) Am I going to lose by transferring when my fund is down?

No. i.e. if you move from a CM uk equity fund to a Scot Eq uk equity fund then its same sector. you will be out of the market for upto 3 days typically.

3) Is my split above ‘Balanced’?

Yes for risk. However, it is too heavy in property for "balanced" portfolio as far as diversification goes.

4) Are Scottish Equitable better than Clerical Medical?

Thats a bit like asking if BMW is better than Audi or Sony is better than Toshiba. They are much the muchness.

5) Have Clerical Medical really closed there doors?

See above.

liverpoolcarl

Cheers Dunstonh.

From speaking with the new IFA yesterday I am looking into going in to market risk ivestments given my age. We have not discussed funds yet but this will be split across Scot eq funds and external funds, reviewed in 12 months.

Is this an appropriate way forward?

liverpoolcarl

Hi Everyone, Dunstonh,

I am due to meet my new IFA today to start the new pension.

Can anyone suggest if they above is a decent approach given my age etc.

I will post back after today with the suggested funds before going forward with anything.

dunstonh

There is no one set investment approach that is suitable. A longer term would suggest you could take on a bit more risk than a shorter term. However, you need to think about how you would react if you got your statement through and saw a loss from the previous year. Something that has happened with very many investments over the last year.

Would a 10% loss worry you? 20%? 40%? 60%? That is the bit that really matters as the investments have to match your risk profile.

Generally, single fund investing is old fashioned so if a Mixed fund or balanced managed (or cautious, adventurous etc) is recommended, then ask questions as to why. I dont want to say they are bad. Indeed, some of the Scot Eq internal funds are better than the HL MM funds that so may people on these forums have used. So, they are fine for a lazy investor. its just that I woudlnt use them given the choice. I would look to utilise a structure of so many % in the different areas to give full and proper diversification.

liverpoolcarl

Cheers Dunstonh

Diversification is a word the IFA used alot. I think I have already chosen 'Market Risk' so I will post back with the selection and % and see if you all agree if they suit market risk and are spread correctly.

Cheers for you help.

liverpoolcarl

Hi Dunstonh,

I have had my meeting and the selection is below:

Scot Eq Select Reserve - 10%
Scot Eq 80/20 Defensive - 10%
Scot Eq Index Linked - 10%
Scot Eq Cash - 10%
First State Asia Pacific Ldrs - 10%
UBS Emerging Markets - 10%
Invesco Perpetual Income - 10%
Newton Higher Income - 10%
Fidelity European - 10%
JPM Natural Resources - 10%

The charges are 2.09%.

Is this good Diversification for Market Risk?
Are the charges reasonable?

jamesd

liverpoolcarl, what risk level did you tell the adviser you wanted, or how did you discuss how much up and down movement you'd accept?

What charge is 2.09%, the annual management charge of the funds or the initial charge, if any? 2.09 seems high for fund annual management charges. 1.5% is normal for AMC in general UK funds, though a few charge a little more, internal funds of pension funds usually less. You might ask work what charges they have agreed the adviser should be making, just in case there's a mistake.

Overall the adviser seems to have taken a view that the UK will do badly and/or used low risk UK funds to meet your risk target. The 60% that are not Scottish Equitable seem well selected from those available in general, so it looks likely to be a good job, except for using 10% for everything. No US cover, which is reasonable if expecting a big drop in the US and no Japan, which is reasonable, though at least a few percent in each would be nice.

Your funds are split into two general groups, first, a very cautious selection of Scottish Equitable internal funds for 40% of your money that will do well (not drop!) if there's a massive recession in the UK and the stock markets collapse:

Scot Eq Select Reserve - defensive managed: 60% cash, 24% property, rest fixed interest - 10%
Scot Eq 80/20 Defensive defensive managed, mostly fixed interest - 10%
Scot Eq Index Linked RPI-inflation linked gilts - 10%
Scot Eq Cash - cash, about 4% a year - 10%

Then a selection of good external funds that are far less cautious and seem very well suited to your age:

First State Asia Pacific Ldrs asia-Pacific excluding Japan - 10%
UBS Emerging Markets - OK given choices available - 10%
Invesco Perpetual Income - UK Equity Income - 10%
Newton Higher Income - UK Equity Income - why not Invesco Perp Income? - 10%
Fidelity European - Europe Including UK - seems best European they offer - 10%
JPM Natural Resources - global commodities, one of the best funds around in this area- 10%

I don't see why both Newton Higher Income and Invesco Perpetual Income are there. The Newton fund has both higher volatility and lower returns than the Invesco Perpetual fund so using 20% in the Invesco Perpetual fund seems better. Invesco Perpetual Income is one of the stars of the UK fund market, an excellent fund. This should be a purely positive change. This is the only part that looks like a possible poor choice of fund, so maybe I missed something myself - the adviser should be able to explain why both were used.

Or perhaps move only 5% and use the other 5% for a US fund to fill one of those gaps?

JPM Natural Resources already provides significant gold exposure but if you take a view that the markets may go down a lot, you might ask the adviser about replacing Scottish Equitable Cash, or half of it, with Merrill Lynch Gold and General. It's a high risk fund but it there is a major recession it should do very well and counteract any losses in the external fund selection. You should expect the value to go up and down a lot. Perhaps the other 5% Japan in case Japan finally does well this year, or a US fund since US is a massive missing piece at present? The changes in this paragraph would increase risk/volatility but probably do better if there's a major recession or Japanese recovery.

These changes may not be possible if there are requirements to have a certain percentage in Scottish Equitable's own funds or limits on how much can be in each external fund. In any case, nothing to be really unhappy about in the original selection overall - decent enough reasons to not do everything I've mentioned possibly doing (except the equity income funds... which really need understanding).

liverpoolcarl

Thanks jamesd.

After the advisor going through the risk categories I chose 'Market Risk.

I quote the pack I have been given in relation to Charges:

"The cost of the plan to you amounts to approximately 1.59% per annum, being 1% contract cost and an additonal 0.59% for the funds recommended.

Your IFA will also recieve an amount of 0.5% of the fund value each year.

The total cost of the plan will amount to approximately 2.09% per annum."

I am hopefully meeting the guy today to discuss the points you have raised.

Thank you for the detailed reply, it is really appreciated.

EdInvestor

The charges are high.

For a 27 year old, IMHo this choice is too defensive, and there's nothing like enough in UK equities, too much in bonds and cash.

liverpoolcarl

How do I approach the charges being high, can I haggle?

I need to go with this IFA or my company will not contribute, presumably I can go direct to scot eq but with no further help from the IFA in the following years.