Consolidating company pensions

Question

I am a 33 year old IT contractor and have 3 company pensions from previous employment over the years. I am looking in to consolidating my pensions and to start adding personal monthly contributions.

A friend recommended a local Pensions Advisor and after some preliminary investigations he is now asking whether I want to proceed with an in-depth report (and then subsequently use them to manage my pension)

If I agree to go ahead with the report and then decide not to proceed I will have to pay a £1,000 fee. If I do proceed, then I have to pay a 3% implementation fee along with a 0.75% management fee per annum. The management fee is paid monthly.

I don't really know if this a good idea or not, the costs seem quite high. I have seen a number of good reports for using nutmeg.com instead which doesn't appear to have huge setup costs. I asked if he could provide me with an indication of expected returns but he said that would form part of the report as it is personalised. Paying at least £1,000 for an indication of anticipated returns seems odd to me.

Any advice would be gratefully received.

Answer 1

Have you shopped around? I would agree that the fees seem high.

The first question I would ask if if the .75% management fee is per year or per month? If it is per month, you will almost certainly lose money each year.

A quick search shows that Fidelity will allow one to transfer their pensions into a self directed account. Here in the US, where we have 401Ks, it is almost always better to transfer them into something self directed once you leave an employer. Fidelity makes it really easy, and I always recommend them. (No affiliation.)

Here in the US they actually pay you for you transferring money into your account. This can come in the form of free stock trades or money added to your account.

I would encourage you to give them or their competitors a look in order to make an informed decision. Often times, a person with lowish balances, can't really afford to pay those high management fees. You might need in the 10s of millions before something like that makes sense.

Answer 2

I've been down the consolidation route too (of a handful of DC pensions; the DB ones I've not touched, and you would indeed need advice to move those around).

What you should be comparing against is: what's the cheapest possible thing you could be doing? Monevators' online platform list will give you an idea of SIPP costs (if your pot is big enough and you're a buy-and-hold person, ATS' flat-fee model means costs can become arbitrarily close to zero percent), and if you're happy to be invested in something like Vanguard Lifestrategy, Target Retirement or vanilla index trackers then charges on those will be something like 0.1%-0.4%. Savings of 0.5-1.0% per year add up over pension saving timescales, but only you can decide whether whatever extra the adviser is offering vs. a more DIY approach is worth it for you.

Are you absolutely sure that 0.75% pa fee isn't on top of whatever charges are built into the funds he'll invest you in? For the £1000 fee, advisers claim to have high costs per customer because of "regulatory burdens"; this is why there's talk of an "advice gap" these days: if you only have a small sum to invest, the fixed costs of advice become intolerable. IMHO, nutmeg are still quite expensive for what they offer too (although still probably cheaper than any "advised" route).