Transferring your personal pension You may decide to transfer your funds You may decide to transfer your existing funds Why transfer funds? Many of us have worked for a number of different employers, joining a new company pension scheme each time we move jobs. You may also have a personal pension account separate from your employer. Bringing together all of your pension funds in one place could be a good idea, cutting the fees you pay and making it easier to keep track of your retirement investments. Consolidation Bringing together smaller funds can reduce charges: Prudential, Scottish Life, Standard Life and Zurich, for example, all offer lower fees for those with bigger pots. Stop trail commission When you open a pension account your adviser will often receive an upfront lump sum, followed by annual ‘trail’ commission. This comes out of your pension fund, reducing the value of your pension pot when you reach retirement age. Even if you have switched to a new adviser, your former adviser could still be receiving up to 1% of your fund each year. Switching provider should cut the trail commission link. Lower charges Fees, legislation and your investment needs all change over time, so it may be worth switching to a provider with lower charges or to a more suitable product. If you want more control over your investment, you could switch to a Self-Invested Personal Pension (Sipp). SIPP transfers SIPPs can be an attractive home for existing pension ‘pots’ currently tied up in other schemes. Bringing them together may reduce fees and give you access to better investment performance. Pension transfers make up a high percentage of most SIPP providers’ business but not all pension schemes are suitable targets for such a switch: Final salary (defined benefit) employer’s schemes normally offer an unbeatable deal. As well as a guaranteed pension, they provide generous spouse’s benefits that are hard to replicate in private schemes. Defined contribution schemes are more likely transfer candidates. The pension they pay depends on investment performance- and for many schemes this has been disappointing. It’s normally not worth moving if you are a current member of an employer’s DC scheme however, as you would lose your employer’s contribution. If you are self-employed and belong to a private pension scheme, switching to a SIPP may be more worthwhile. Even here, you need to check to see if your existing scheme offers a guaranteed annuity rate. You also need to consider any leaving penalty, such as the MVR (market value reduction) levied by with-profits funds. Although a SIPP may not be the place to move your main pension savings it can still be a healthy alternative for accumulated additional voluntary contributions (AVCs). ‘Protected Rights’, held by those who contracted out of the second state pension (S2P) and accumulated in a separate fund, may also do better in a SIPP. Investment choice Assuming that there are no inherent barriers to switching, it is worth looking at the pros and cons of making a move. SIPP providers give a wider choice of funds than personal pensions and often make this their main selling point. The underlying assumption is that self-selected investments offer better growth prospects than default funds. A more subtle difference is also worth noting if you have several scheme-invested pots. If each scheme has a similar investment strategy, such as tracking the FTSE 100, a sudden fall can leave you badly exposed - particularly if you are nearing retirement. Bringing your pension savings together offers more opportunity to diversify and to keep track of where everything is invested. You can spread risk by holding money in corporate bonds, Real Estate Investment Trusts and the AIM as well as UK equities. Source: Which?
Posted on: Wed, 18 Sep 2013 07:21:01 +0000
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