Pension Sharing Transfer Costs

Newcomer · 14 May 2004 at 1:45AM

Following divorce

am sorting a pension share.

Saw my IFA yesterday. It's already cost an arm and a leg to take funds out and now I see on the very last page of the quote that my IFA will receive almost £3k immediately (out of my fund) as commission from the company (Standard Life), who is to open a new pension for me! I must be in the wrong job! How can this amount of commission be justified? ???

Any comments/advice anyone? In hindsight could I/can I approach a company direct to sort this.

Pal · 14 May 2004 at 3:13PM

Two questions:

Is it your pension policy (or company scheme) or your ex-spouse's?

Is it held within a personal pension policy?

Newcomer · 14 May 2004 at 3:42PM

Edited by Pal at Newcomer's request:

It's the sharing of my ex-spouse's occupational pension. Does that answer both your questions?

We both shared the £750 cost of administering the division but now I'm shocked by what appears to be a very large commission to set up the fund for me. Does this cover me for ongoing advice after the initial consultation and set-up, or is it normally just a one-off payment?

Thanks.

Pal · 14 May 2004 at 3:43PM

As it was an occupational scheme, write back to the Trustees saying that you do not want to transfer out because of the reinvestment costs and you want them to set you up as a member within their fund. They should be able to do this easily. Just because you are splitting your pension rights from your husband's does not mean that you have to transfer out of the scheme.

The Trustees cannot buy an investment outside of the fund for you, so if you refuse to transfer they have to comply with the court sharing order by setting you up in their fund.

You need to carefully compare whether you would be better off within your husband's existing fund or transferring it out. It might be worth paying your IFA a fee so that he can help you with this while remaining unbiased.

Also, ask your IFA for a fixed fee quote instead of commission and an illustration of how the fees on his suggested policy would reduce if you did this. It might save you money to pay the fees up front.

Newcomer · 14 May 2004 at 3:56PM

Thanks for this but unfortunately I did ask if I could remain in their (excellent) scheme, but I wasn't allowed.

Oh how I wish this statement of yours were true!

"The Trustees cannot buy an investment outside of the fund for you, so if you refuse to transfer they have to comply with the court sharing order by setting you up in their fund. "

Could I have been given incorrect advice from them, or have you come across this before?

Otherwise I will follow your suggestion regarding a fixed fee quote.

Thanks.

Pal · 14 May 2004 at 4:03PM

What sort of pension scheme was it? Final salary or money purchase? (The position varies depending on the type).

Newcomer · 14 May 2004 at 4:05PM

Final salary.

Pal · 14 May 2004 at 4:15PM

OK.

The Trustees have a specific amount of time to comply with a pension sharing order, and this is specified on the order itself. Failure to do so breaching a court order.

Also, it is against FSA rules for the Trustees to buy an investment in the name of someone else (it would be like me taking out an ISA in your name).

As a result if you do not transfer yourself, the Trustees cannot do anything with your money except use it to secure a pension policy for you within their scheme as they have to comply with the court order. The only way they could do that is to buy an annuity in the Trustee's name or pay your pension from within the existing fund, both of which should be cheaper for you than transferring to a personal pension. At the very least it gives you more options to discuss with your IFA.

The simple thing to do is write and ask them ask them what they will do if you choose not transfer out because of the prohibitive fees of doing so. There is no reason to be shy about this. Simply ask them what would happen. It will be interesting to see how they respond.

Most final salary trustees want people to transfer out in these cases (which is why they gave you the original advice). But in the end if people do not transfer out the Trustees have to provide pensions of some kind because there is no other option available to them. It is probably worth pressing them a bit to see if they give in before resigning yourself to transferring out.

Also, if they say they will buy an annuity for you, ask them to give you details of the terms on which it is bought and the rate you get. Get your IFA to check it.

If they choose a poor annuity provider or a poor rate you can go after them for failing to look after your interests, which is one of their statutory duties as Trustees.

Newcomer · 14 May 2004 at 4:17PM

Forgive my cynicism over fees charged and the financial institutions in general.

Pensions are such a minefield that seems to leave us wide open to being 'fleeced'. Which was why I was asking if the £3k sounded about right. Do you know if they normally work off a percentage of the amount being transferred?

Newcomer · 14 May 2004 at 4:22PM

Wow Pal, I certainly will follow your advice. I mean it's only cost me half of £750 so far, but not £3k as yet, so plenty to gain.

It seems such a shame to 'throw away' hard-earned money. Will keep you informed.

Thanks once again!

PS Would be interesting if anyone else has challenged in this way.

Pal · 14 May 2004 at 4:41PM

No problem. I've never seen it done either so it will be interesting to see how it turns out. (On all the schemes I deal with the Trustees allow the scheme to buy the pension to avoid just this type of problem.)

The 3k is a percentage of the amount you are transferring. Remember that this is not removed from your fund but is taken back by SL through their fees over a period.

Ask your IFA whether doing it on a fixed fee would be cheaper for you and get him to give you the comparison in writing.

A final point that I just thought of.

The Trustees or your solicitor may have inserted a clause into the pension sharing order that requires you to sign consent to transfer out before the time limit (usually four months) during which they have to implement the order, starts to count down. If there is no such clause in the sharing order then what I said before is OK. If you signed something saying that you will transfer then you could still try arguing but you are less likely to succeed.

Pension Sharing Transfer Costs

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