Defined Benefit  

DB transfer fees have reached 'record high', warns XPS

DB transfer fees have reached 'record high', warns XPS

Fees paid by individuals transferring out of their defined benefit pension scheme have hit their highest levels since 2018, according to XPS, which warned savers could out of money 10 years earlier as a result. 

XPS Pensions Group’s annual member outcomes survey, published today (October 4), found members transferring in the year to March 31, 2021 faced average total fees of 1.9 per cent each year, including new product charges and ongoing financial advice.

This is a 10 per cent increase from the 1.7 per cent charged the previous year and is the highest level seen since XPS’s survey began four years ago.

XPS said the increase came as transfer values rose significantly over the same period.

It found the number of people transferring was 23 per cent down on the previous year but the average transfer value paid increased by 29 per cent to £375,000.

This rise was driven by members with large value pensions choosing to transfer, XPS said.

Mark Barlow, head of member options, said: “The slowdown in transfer activity over the last 12 months is unsurprising since most of the year was spent in lockdown. Interestingly, it’s been those with the largest values who have continued to transfer. 

“This, together with the reduction in choice for members transferring, may explain why average charges have increased by 10 per cent since last year.”

Alistair Cunningham, financial planning director at Wingate Financial Planning, said1.9 per cent per annum was towards the top of what someone should be paying for a defined contribution pension. 

He added: “That XPS found this particularly from DB transfers is not tremendously relevant as a DB transfer should stand up irrespective of the cost, though cost would certainly be a factor, and with no effective cost at all in the DB scheme this is one of many reasons most people should not transfer. 

“I do wonder that this has more to do with increased transparency on fees than the fees themselves.”

But Dominic James Murray, CEO and independent financial adviser at Cameron James, said the figures were not surprising as the DB transfer advice market had become more expensive.

He said: "I would suspect the reason for this increase is the IFA firms needing to recuperate more ongoing costs in order to make the initial advice and red tape worth it.

"An average of 1.9 per cent does seem slightly high though. At Cameron James we have an average ongoing cost for DB transfers of between 1.4 to 1.5 per cent per annum. With around 0.2 per cent going to AJ Bell or Fidelity as platform costs, around 0.2-0.3 per cent for portfolio costs and 1 per cent IFA annual fee."

He said he expected the figures cited by XPS to have increased by a further 10 per cent or 20 per cent within the next year. 

XPS said the increased fees could also be driven by people picking more “sophisticated” pension products.

According to the firm, 99 per cent of members transferred into a self-invested personal pension (Sipp), with fees ranging from 0.7 per cent to more than 3 per cent per year, including ongoing advice fees.