Any surrender charges will also be capped at 1 per cent if they are able to take benefits earlier than the minimum early pension age of 55.
January 2017 bought us the FCA release – Advising on pension transfers: our expectations. This gave some further information on the FCA's requirements on pension switches.
In particular a concern was stated that “some firms have been advising on pension transfers or switches without considering the assets in which their client’s funds will be invested. We are concerned that consumers receiving this advice are at risk of transferring into unsuitable investments or – worse – being scammed”.
Finally, the recent FCA discussion paper DP18/1 on ‘Effective competition in non-workplace pensions’. Though not directly linked to pension switching it does talk about potential barriers to switching such as the difficulty in identifying and comparing charges, as well as they have concerns about reduced competition of charges, fund choice and the use of defaults.
Clearly, if an adviser is engaged, these issues can all be addressed on a bespoke basis.
One interesting figure that was estimated in this document was that the non-workplace pension assets under management is around £400bn – more than double the amount invested in contract-based DC workplace pension schemes.
The switching issues
An experienced adviser will need to look at a whole raft of issues to consider whether a switch is appropriate. Though this is not an exhaustive list, here we look at the key ones.
1) Charges
Over the last few years charges have reduced in general across providers. However, it is important to make the distinction between price and value for money.
There are almost certainly numerous small, self-administered schemes (Ssas) and self-invested personal pension (Sipp) arrangements which exist where only straightforward investments are required.
This means the individual could be throwing hundreds if not thousands of pounds away in unnecessary fees, when a much simpler arrangement would give the investor all that is required.
Of course the converse is also true: some investors would welcome a degree of self-investment, and this in itself could prompt a switch.
Interestingly DP18/1 highlighted the increase in Sipp sales since the introduction of the Retail Distribution Review in 2012: sales more than doubled in 2013 and continued to rise to 794,000 by 2016.
Of course most modern Sipp have self-invested fees that only kick in when genuine self investment is taking place.
Fundamentally the question is this: is the customer getting good value for the price they are paying? For example diverse, multi-asset funds, guarantees, smoothing of returns etc could all be appropriate for the client.
2) Exit fees
