Re: Martins article on Pension Brokers

MiserlyMartin

For those who have not read the article, its about using a broker to get a new plan. This brings down the charges buy cutting out the commission which the IFA takes and investing it back into the pension fund instead. Obviously I would like to do this as I think I am capable of picking my own funds.

My employer has just employed a new financial advisor who has advised the company to move the company scheme to a new provider. I have just signed up for the new scheme a few weeks ago. The advisor also talked me into moving my old scheme into the new scheme - I suspect he will recieve more comission for this which is why he advised it.

Now my question is am I entitled to use a broker to open up a new pension scheme with the same provider as my employer use, and insist that they must contribute into that instead of the scheme arranged by their IFA??? Am I still within a cooling off period? Even if the employer says they will only pay into their IFA's scheme I can still stop him transferring my old pension scheme into the new scheme if I can cancel within the cooling off period.

How do I stand with my employer? They are contributing 6% of my salary even if I dont contribute myself so a good deal but I want that 6% into a scheme that does not have 1% management charges.

Can anybody advise. Sorry for rambling I hope this makes sense.

EdInvestor

Hi Martin

Have you checked what charges the company has negotiated with the provider for the GPP? They should be lower than what you could get on a separate scheme you set up yourself - and possibly competitive with what you could get through a discount broker.

It doesn't seem to make any sense trying to do separate deals ( which the company probably won't accept anyway) without having even checked the charges on the new scheme.If they're not as good as what you could get through a discount broker, you could of course always point this out to your company and urge them to try to improve the terms.

MiserlyMartin

Yes I've checked them. The employers scheme has a charge of 1%. If I were to set up a scheme with Cavendish the charge would be 0.6%. Its normal for an employer to use an IFA. Most people do. However now you can go direct and this is good news, about time. The other reason they have used an IFA is so he can provide advice on other financial matters in monthly visits for the employees, paid for from the deal with the group personal pension.

Myself being an expert moneysaver I feel I do not need this and therefore don't want to pay for something I will not use.

dunstonh

For those who have not read the article, its about using a broker to get a new plan. This brings down the charges buy cutting out the commission which the IFA takes and investing it back into the pension fund instead.

A discount broker is just an IFA taking less commission. The term broker is probably inaccurate in that respect.

The advisor also talked me into moving my old scheme into the new scheme - I suspect he will recieve more comission for this which is why he advised it.

Cynical. Yes he will earn more commission for it but pension transfers CANNOT be recommended without suitable grounds for doing so. If the charges on the old scheme are lower and it retains benefits which cannot be offered on the new scheme, then it cannot be recommended. Its not like a savings account which can be transferred regardless of the interest rates. There has to be justification for doing it.

Now my question is am I entitled to use a broker to open up a new pension scheme with the same provider as my employer use, and insist that they must contribute into that instead of the scheme arranged by their IFA???

No you are not. The employer may do it but it will increase their administration and they may not be willing to do it.

Am I still within a cooling off period?

30 days from receipt of notice is the norm. However, pensions are basically pay as you go so you can stop it any time.

Even if the employer says they will only pay into their IFA's scheme I can still stop him transferring my old pension scheme into the new scheme if I can cancel within the cooling off period.

Yes. Providing the transfer hasnt left the old scheme. If it has, many (a majority) will not accept the funds back.

Before you do anything on that front you would need to check that Cavendish will accept pension transfers without giving advice and on their normal terms. Pension transfers carry increased risk and administration and they may not offer that service on their standard terms.

However now you can go direct and this is good news, about time.

You are not going direct though and if you were to do so, you would find most pension providers keep the commission they pay IFAs for themselves. You would also often find its a lesser product than that offered by the IFA.

The other reason they have used an IFA is so he can provide advice on other financial matters in monthly visits for the employees, paid for from the deal with the group personal pension.

No. Thats a benefit for the IFA. The company do it to reduce administration on their side and they do not have to pay somoene in-house to do all the work. Sometimes companies will negatiate terms with the IFA that means the IFA will do things cheaper than normal commercial rates.

Myself being an expert moneysaver I feel I do not need this and therefore don't want to pay for something I will not use.

There is room for everyone in the scheme of things. If using an IFA means that an individual does something they wouldnt have done before, then thats a good thing. If that also prevents them getting advice and overpriced product from a bank, thats also a good thing. In your case, you have the confidence to choose your own pension provider, investment funds, waiver and other addons and thats good for you.

Out of interest, which pension provider have you chosen to use through Cavendish?

MiserlyMartin

dunstonh wrote:

Cynical. Yes he will earn more commission for it but pension transfers CANNOT be recommended without suitable grounds for doing so. If the charges on the old scheme are lower and it retains benefits which cannot be offered on the new scheme, then it cannot be recommended. Its not like a savings account which can be transferred regardless of the interest rates. There has to be justification for doing it.

Actually the charges are the same on the old and new scheme. Standard and Poor's ranking for the new scheme is better however, the charges for some of the external funds are more than that of the old scheme. The past growth on those funds has been very good though.

dunstonh wrote:

No you are not. The employer may do it but it will increase their administration and they may not be willing to do it.

I haven't asked them yet but I get the feeling that they do not want to pay into any other scheme other than the new one.

dunstonh wrote:

Before you do anything on that front you would need to check that Cavendish will accept pension transfers without giving advice and on their normal terms. Pension transfers carry increased risk and administration and they may not offer that service on their standard terms.

Its a £25 flat fee. (£35 not arranged online) Its in Martins article: "Put £150 a month into a Norwich Union stakeholder pension bought directly over thirty years and with a 5% annual growth example, the fund would be £105,000.

However, buy exactly the same pension paying Cavendish a £35 fee and it’d grow to £112,000. This is £7,000 more, just by buying it a different way. And even the growth were lower, or the investment lost money, you’d still be better off via the discounter’s cheaper charges."

If you look at the Cavendish website you'll see how it works. I also spoke to them today about it.

dunstonh wrote:

You are not going direct though and if you were to do so, you would find most pension providers keep the commission they pay IFAs for themselves. You would also often find its a lesser product than that offered by the IFA.

That may be the case if one were to go direct to the provider but through Cavendish the commission is invested back into the pension.

dunstonh wrote:

There is room for everyone in the scheme of things. If using an IFA means that an individual does something they wouldnt have done before, then thats a good thing. If that also prevents them getting advice and overpriced product from a bank, thats also a good thing. In your case, you have the confidence to choose your own pension provider, investment funds, waiver and other addons and thats good for you.

True

dunstonh wrote:

Out of interest, which pension provider have you chosen to use through Cavendish?

Haven't decided yet, but I might go for Friends Provident.

I was surprised by the negativity of your post but when I got to the bottom I see the reason - you are an IFA!!

dunstonh

Its a £25 flat fee. (£35 not arranged online) Its in Martins article: "Put £150 a month into a Norwich Union stakeholder pension bought directly over thirty years and with a 5% annual growth example, the fund would be £105,000.

That relates to contributions. It doesnt say if it relates to transfers though which are a higher risk class of business and more time consuming on administration. I would still check with them before doing anything.

Haven't decided yet, but I might go for Friends Provident.

Good range of low risk funds. Although their Personal pension offers greater fund choice. You can still pick the stakeholder funds in the PPP at the same charge. They are one of the providers where there is little point going for the stakeholder as the PPP offers the same plus more.

The NU example for stakeholder is a bit dodgy as NU at this very moment in time have one of the worst stakeholders there is and the 4 funds they offer have limited potential to even hit the 5% mark.

I was surprised by the negativity of your post but when I got to the bottom I see the reason - you are an IFA!!

What negativity is that? I answered your questions and suggested you clarify a few things. Cavendish are IFAs as well so there is no difference between me and them on that front.

MiserlyMartin

Sorry, no you were not being negative about this. I got the wrong end of the stick from an earlier post.

I haven't transferred the pension yet via Cavendish. I want to see how the company F.Prov scheme runs first. Plus your point about there being no comeback to the IFA has made me think. Sorry for the delay!

dazman_3

Hi Martin,

I’ve also recently looked at moving my Scottish Equitable pension to Cavendish. The yearly pack that Scottish Equitable sent through showed no charge information but after a few Emails I discovered that I was paying a 1% annual charge - to be fair though the funds are performing very well.

I’m currently a UK non resident so I’m not contributing at the moment but I gather on top of the 1% mgmt charge the IFA also gets paid commission on your contributions – have you found out if this applicable or what this is in your group case also?

dunstonh

I’m currently a UK non resident so I’m not contributing at the moment but I gather on top of the 1% mgmt charge the IFA also gets paid commission on your contributions – have you found out if this applicable or what this is in your group case also?

The IFA gets paid out of that 1%, not in addition to it. The IFA doesnt get the 1% either. If they go for fund based and take the maximum, then its usually 0.4%. Meaning the provider gets 0.6%.

dazman_3

Hi dunstonh,

Thanks for the info. The feedback I received verbatim in my case was

“The only annual charge applicable to your pension plan is the 1% annual management charge. No commission is being paid at the moment to your company advisor. Commission is only payable if there is contributions being paid into the plan.

However, there was commission paid whilst the plan was being contributed to”

I guess my charges were probably 1.4 to 1.5% then in total when I was paying into my plan. Useful info on the commission though.

dunstonh

In cases like that, the provider is taking the whole 1% for themselves. If the advisor choses to be paid on the contributions (i.e. £2.88 for a £50pm net contribution) rather than fund based, then the providers will only pay that whilst you are contributing. The minute you stop paying, they stop paying the advisor as well. However, they leave the annual management charge the same and the provider gets all of it from that point onwards.