Candidates for a pension transfer

Consolidation later in life can make it harder to justify and recover from any exit penalties that will apply, Mr Brooks points out.

However, he says those who have pension savings that started in the 1980s and 1990s when many of the pension rules around charging were different may want to look at what charges apply and consolidate them to a low charging existing arrangement.

The greater pension freedoms granted in April 2015 also mean many more members will currently be interested in transferring their benefits from a final salary scheme to a money purchase arrangement.

The significant difference in benefits really means that it is more important than ever to review all a clients pension arrangements, especially at or near retirement.

The result may well be that the client should remain in the final salary scheme but there can be a number of compelling factors that could lead someone to transfer now whereas before the reforms they may not have wanted to.

If you are not looking at transfers from final salary schemes or other safeguarded benefits then Claire Trott, head of pensions technical at Talbot and Muir, says consolidation is likely to be more about ease of administration, service and costs to the client.

She says older schemes tend to have higher more complex charges while newer schemes are more than likely to have a percentage charge or fixed fees.

Ms Trott says fixed fees will be more appealing to those with larger fund values and hence a transfer to consolidate could save significant cost in the long run.

In terms of how often arrangements should be reviewed Adrian Mee, consultant at Mattioli Woods, says all pension savers should consider a pension transfer on a regular basis.

He says: “Over the years, many different pension contracts have been created by providers in response to changes in central legislation that provide different benefit, investment and cost structures.

“Some old pension contracts may not allow full flexibility of the current government amendments to allow freedom of access to capital, both in life and death, which should be a firm point of consideration for any pension saver.”

Martin Tilley, director of technical services at Dentons, says advisers should certainly review any clients with policies taken out pre-2001 and look at the charges on their scheme compared against modern single priced contracts.

Mr Tilley claims that “a mini revolution on pension policy pricing came into effect” in 2001 as this was when stakeholder pensions were introduced.

He says: “It is also likely that these old policies, as well as being more expensive may also have tighter fund choice selection and may also not offer drawdown features, let alone those introduced by the April 2015 pension freedoms.

“Care should be taken however as some older policies do have valuable benefits such as guaranteed annuity rates and these should be evaluated before transfer or consolidation to a newer product is made.

“Transfers from funded defined benefit schemes are subject to special rules and require mandatory financial advice.”

David Trenner, technical director of Intelligent Pensions, agrees that the age of clients’ pension scheme is a key consideration for advisers as older schemes often fail to meet the needs of today’s investors.

He says: “With-profits policies are often invested wholly in secure funds to meet guarantees, but this means that they cannot achieve returns higher than the guarantees.

“‘No lower than’ often also means ‘no higher than’. Guarantees are often attractive, but they are expensive and people who will not need income for more than 10 years should not be paying for them.

“One form of guarantee which is usually worth retaining is a guaranteed annuity rate: these are often able to pay more than double current rates, and therefore offer fantastic value.”