Transferring pensions is a very complex area of work and can only be advised on by an individual holding the relevant qualification, Ronnie Morgan, strategic market insight manager of Scottish Life, points out.
Andrew Tully, pensions technical director of MGM Advantage, says the structure of charges can impact on different people in different ways, making a simple ‘it pays to transfer’ message difficult to achieve.
Mr Tully points out some schemes also have very valuable additional benefits – for example, a guaranteed annuity rate – which could outweigh the savings to be achieved by transferring.
He says that is why getting financial advice is important, so a qualified and knowledgeable individual can look at the individual circumstances.
When selecting a pension fund, Saq Hussain, head of PricewaterhouseCoopers defined contribution consulting team in the north, says it is important for advisers to understand what is driving an employer or trustee’s decision.
He says employers and trustees are also interested in areas such as what communication support is going to be provided (for example, branded booklets, websites, presentations), how much flexibility is there with the investment design on offer and what the retirement support process looks like.
He says charges are just one thing an adviser needs to look at. According to Mr Hussain, other issues advisers need to think about are:
1) difference in investment options between the current and new arrangement;
2) broader benefits to the individual of consolidating their pension pots in to one arrangement;
3) giving up any guarantee intrinsic in the existing product;
4) features that are available in the new plan that are not present in the new product; and
5) differences in the death benefits available or the level of tax free cash.
But Morten Nilsson, chief executive of Now Pensions, says member pots can benefit significantly from moving from a high-charging scheme to a scheme with lower charges.
For example, he says for somebody earning £26,000 a year with 4 per cent salary growth and 5 per cent investment growth per year, if they move from a scheme charging a 1 per cent AMC to a scheme charging 0.3 per cent with a £1.50 monthly admin charge would see their pots greatly enhanced.
If they move after 10 years, Mr Nilsson says their pot would be £399,729 after a total of 40 years of saving versus £364,064 if they had left it in a 1 per cent charging scheme.