Which adviser for pension transfer?
|Retirement | Investment Choice
Asked by greatestflame, submitted
17 September 2012.
I am in the process of transferring my personal pension funds onto the Skandia platform. I have the choice of two advisers. One is offering me 0.5% for annual review (but monthly review of underlying funds), while the other is offering 1% for quarterly review (and monthly review of underlying funds). The 1% adviser has the most experience, but the other has an intimate knowledge of my main occupational pension scheme. I may wish to take an annuity, or place the funds in drawdown, in 3 years time. How do I decide which adviser is most appropriate for my needs?
One of the advisers has told me that, if my main occupational pension is greater than 20k, the personal pension should be in a SIPP. Is that right? I have never heard this before.
Answered by Justin on 24 September 2012
If you'll likely buy an annuity in 3 years time then your investment choice should really be restricted to cash and maybe relatively safe investments such as cautious fixed interest funds. In this context it's unlikely much investment expertise or monitoring will be required, so the 0.5% adviser may suffice (or consider doing it yourself). And perhaps the bigger question is whether you'll derive sufficient benefit from using Skandia for just 3 years to outweigh the cost of transferring your existing pensions.
If you opt for drawdown instead this will require more comprehensive investment planning and monitoring, as your pension fund could remain invested for many more years and income withdrawals require careful monitoring to ensure your fund doesn't run dry. It may well be the 0.5% adviser has sufficient skill and experience to carry out this task perfectly well. But if you feel the more expensive adviser is more capable then perhaps they will carry out a better job.
I'm not particularly comfortable with advisers trying to charge 1% a year, as this is quite steep and can become a significant sum over time. However, you might feel the advice and service you'll receive justifies the cost - it's a free market after all.
As for the adviser's view that SIPPs should be used for pension pots in excess of £20,000, it's debateable. The advent of low cost SIPPs means it's now financially viable to use a SIPP on pension funds of this size. But whether it's a good idea depends on the extent you'll use and benefit from the increased investment choice. And whenever considering a transfer out of a money purchase occupational pension it's vital to check whether you'll lose any valuable benefits, such as employer contributions and subsidised charges.
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Readers' Comments (3) - To post a comment please register or login
Comment by greatestflame at 9:49pm on 03 Oct 2012:
Thanks, that's very helpful, although I didn't explain my 20k part of the question very well.
I have been told that to put my private pension into flexi-drawdown, I need to be drawing a pension of at least 20k (before tax) from my occupational pension, and that SIPPs (rather than PPPs) can only be used to take advantage of flexi-drawdown. Is that right?
Secondly, if I should be in cash, given the short timeframe before taking benefits, doesn't that limit me to SIPPs anyway, since I understand that Skandia (or PPPs generally), do not offer cash accounts? From a recent posting, should I be looking at the James Hay iSIPP, or for greater choice, one of the higher end SIPPs?
Comment by justin at 10:11am on 08 Oct 2012:
Sorry, misunderstood that part of your question.
If you want to draw an income from your pension (rather than buy an annuity) - usually referred to as an 'unsecured pension' or 'income drawdown' there are limits on how much income you can draw each year. Between ages 55-75 the limits are 0% to 100% of an equivalent single life annuity (calculated by government actuary tables).
However, if you have at least £20,000 annual income for life from other pensions (via a pension annuity/company/state pensions) and no longer contribute to any pension schemes then there's no upper limit on the income you can draw - this tends to be called 'flexible drawdown.
While I don't believe flexible drawdown is restricted to SIPPs, the market is such that only SIPPS tend to offer this facility.
While personal pensions often offer cash funds, rates tend to be very poor - as are cash account rates on low cost SIPPs - the exception being the James Hay iSIPP as you mention. Higher end SIPPs can still prove good value on larger sums of cash if you can secure a decent rate of interest via a savings account that permits pension investment.
Comment by greatestflame at 7:58pm on 09 Oct 2012:
Thanks very much. Can you suggest some higher end SIPPs, that I might look at? When you say larger sums of cash, what figure did you have in mind?