Im transferring 2 older pensions into a new scheme recommended to me by a financial advisor
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For the first year, the adviser is charging 17% of my contributions plus a fixed fee for the transfer every month. Is this a high percentage and am i being ripped off?
MartinFlower
2 months ago
Expert Financial Adviser Answer
James Brooke
answered 2 months ago
That percentage certainly seems excessively high, but it depends on the size of the fund being transferred.
This is because there are some fixed costs involved in giving the advice and doing the transfer in the first place. However, I would not expect these fixed costs to amount to more that £500 to £1,000.
Then there are the variable costs to do with the size of the fund and the level of complexity and the service being provided. The point being that the larger the pension fund the greater the risk to the adviser and his professional indemnity insurers if the advice is deemed to be wrong in the future, but this should be covered by the fact that the percentage fee is of a larger amount, not by having a larger percentage.
Having said all that, I would say that 3% of the fund value with a minimum of £500 to £1,000 would be a much more reasonable figure and I am sure that, like us, many efficient advisers could do it for less.
Unless your two existing pensions are in old style contracts and only have capital units, I do not see how the fund value in the new pension could ever catch up with and then exceed the fund values in the existing plans when the new plan is starting with 17% less money in it.
The adviser is only doing the transfer once so I don't see why the fixed fee is "for the transfer every month". If the fixed monthly fee is for something else, then it may or may not be reasonable depending on the fee and the service that you are getting for it.
Perhaps you could tell us what the fixed fee is?
I hope this helps.
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This is because there are some fixed costs involved in giving the advice and doing the transfer in the first place. However, I would not expect these fixed costs to amount to more that £500 to £1,000.
Then there are the variable costs to do with the size of the fund and the level of complexity and the service being provided. The point being that the larger the pension fund the greater the risk to the adviser and his professional indemnity insurers if the advice is deemed to be wrong in the future, but this should be covered by the fact that the percentage fee is of a larger amount, not by having a larger percentage.
Having said all that, I would say that 3% of the fund value with a minimum of £500 to £1,000 would be a much more reasonable figure and I am sure that, like us, many efficient advisers could do it for less.
Unless your two existing pensions are in old style contracts and only have capital units, I do not see how the fund value in the new pension could ever catch up with and then exceed the fund values in the existing plans when the new plan is starting with 17% less money in it.
The adviser is only doing the transfer once so I don't see why the fixed fee is "for the transfer every month". If the fixed monthly fee is for something else, then it may or may not be reasonable depending on the fee and the service that you are getting for it.
Perhaps you could tell us what the fixed fee is?
I hope this helps.
MartinFlower
answered 2 months ago
This does indeed help and validates information I have from other sources. Im in a position where I can pay in sums of approx £1000 per month at the moment. My concern was that the 17% of first year contributions would take an awful long time to recoup. Adviser Costs after that point are 0.5% of fund value per year.
The Fixed Fee for transfer from other schemes is approx £45 per month and lasts for a year.
It seems to me that the adviser is front loading charges rather than spread over the lifetime of the pension, which from their perspective is a less risky proposition??
Whats to stop me not paying anything in for year 1 (or a reduced amount) and then raising it at year two?
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The Fixed Fee for transfer from other schemes is approx £45 per month and lasts for a year.
It seems to me that the adviser is front loading charges rather than spread over the lifetime of the pension, which from their perspective is a less risky proposition??
Whats to stop me not paying anything in for year 1 (or a reduced amount) and then raising it at year two?
Expert Financial Adviser Answer
James Brooke
answered 2 months ago
Setting up a regular premium pension contract is a one off job, unless the adviser is also monitoring and advising on the fund choices, fund management and rebalancing, for which he seems to be being paid 0.5% of the fund value anyway, so I don't see why there is a fixed fee as well, unless the fund value is small.
I would have thought that, as a maximum, a one off fee of between £500 and £1,000 plus say 3% of each premium would be more than enough.
I suspect that you will find that the adviser will want to renew the 'fixed fee' each year, but with some indexation for inflation.
You will need to look at the illustration that the adviser ought to have provided you with to see the shape of the charges, but it certainly seems as though they are bieng front end loaded. May I ask who the recommended provider is?
I suspect that you will find that the 17% applies to the first year of any contribution or any increase in contributions to stop you just waiting for a year and then paying in more. Again, you will need to look at the illustration and documentation to see how the charges are levied and what tiriggers them.
By the way, since pensions give tax deferral not tax relief, unless there is an emplyers pension contribution conditional or you also making a contribution, or you are already using your ISA and Capital Gains Tax Allowances in full, you may find that making pension contributions is not the best thing for you to do with your money, as you probably won't live long enough to get out what you have put in.
I did a piece on BBC Money Box with Martin Lewis trying to explain this on radio (not easy doing maths over the radio) a while ago.
http://news.bbc.co.uk/1/hi/programmes/moneybox/8449832.stm
Please let me know if I can help further.
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I would have thought that, as a maximum, a one off fee of between £500 and £1,000 plus say 3% of each premium would be more than enough.
I suspect that you will find that the adviser will want to renew the 'fixed fee' each year, but with some indexation for inflation.
You will need to look at the illustration that the adviser ought to have provided you with to see the shape of the charges, but it certainly seems as though they are bieng front end loaded. May I ask who the recommended provider is?
I suspect that you will find that the 17% applies to the first year of any contribution or any increase in contributions to stop you just waiting for a year and then paying in more. Again, you will need to look at the illustration and documentation to see how the charges are levied and what tiriggers them.
By the way, since pensions give tax deferral not tax relief, unless there is an emplyers pension contribution conditional or you also making a contribution, or you are already using your ISA and Capital Gains Tax Allowances in full, you may find that making pension contributions is not the best thing for you to do with your money, as you probably won't live long enough to get out what you have put in.
I did a piece on BBC Money Box with Martin Lewis trying to explain this on radio (not easy doing maths over the radio) a while ago.
http://news.bbc.co.uk/1/hi/programmes/moneybox/8449832.stm
Please let me know if I can help further.