I’ve worked for two UK companies, and built up small group pension funds with them, that now span three different pension providers.
None are likely to keep me in the lifestyle to which I wish to become accustomed, but I do want to do the best by the money that I have thus built up.
While I’m keenly aware that it’s a good idea to diversify one’s portfolio, the funds themselves allow this kind of diversification internally.
Assuming that each pot has less than £20,000, would I save myself administrative charges by conglomerating them all into a single fund, that I then manage using the choices provided within that fund, or would it make more sense just to leave them where they are and allow them to go their own separate ways? Would the quality of the fund management differ between providers, and therefore the diversification be valuable not just in what the money is invested in, but who is doing the investment?
(One minor but not insignificant point is that I am really bad at record-keeping, and the paperwork from three funds - as well as one in the Republic of Ireland - is causing me to have to buy more and more box files every year, and currently fills four of them. On the other hand, I’m really lazy…)
You need to go to a pensions advisor, it is not legal to give pensions advice unless certificated, and certainly not in a recoded and verifiable manner open to public scrutiny
As someone who has worked in the UK pensions industry for almost 4 years, I believe this is true up to a point, but a little misleading. Although I am not an adviser myself, and as such anything I say should not be taken as financial advice, it is still possible to give useful information on a non-advisory basis. Usual caveats about advice on a message board being worth exactly what you paid for it apply, of course.
To firstly clear up the above quote - FSA rules stipulate that advice should be given for certain types of pension transfer, typically those that involve transferring a defined-benefit (e.g. final salary) pension into a defined contribution (e.g. money purchase) pension, with the loss of guaranteed benefits that that entails. Furthermore, such advice must be given by an individual who possesses the specific qualifications to do so, and as with any client-advisor relationship, one would expect the advice to be confidential. But it is a big stretch to go from there to saying that giving unauthorised pensions advice is illegal - that’s too much of a generalisation.
Anyway, to address the OP:
Indeed - any pension company, even the less-good ones, should offer you a range of investment options, so that you can (say) put 30% of your portfolio in overseas shares, 40% in UK shares, and 30% in bonds (or whatever). Since the underlying investment vehicles are always held in some sort of trust, it is not usually necessary to be too concerned about the financial stability of the pension company itself (though this is a valid consideration) since even in the event of their failure, the actual assets should be protected. The exception is with “With-Profits” funds, if the level of bonuses promised has been too ambitious - this is essentially what caused the collapse of the Equitable Life.
The vast majority of pensions charge entirely on a percentage basis. This means that from this perspective, it is irrelevant how many pots you have, as there are no fixed costs. However:
…this is precisely the point, and the main reason to review things in my opinion. There are myriad fund management companies out there and only a few of them are any good at what they do. For example, a US share fund managed by, say, Standard Life may perform a lot better than the equivalent fund managed by, say, Aviva. In addition, although each pension will charge on a percentage basis, it is unlikely their charges will be the same. All else being equal, if one policy has an annual charge of 0.5%, and another has an annual charge of 1.5%, it would be better to move the latter into the former.
The problem is that usually, not everything else is equal. There is no point in having a fund that charges 0.5% a year if it only grows by 2% a year - it would be far better to have one that charges 1.5% a year but grows by 5% a year, as you will make more money despite the higher charges. The tricky thing is, past performance is not a guide to future performance. But having said that, the best fund managers have consistently out-performed the average insurance company pension fund over a period of many years. This is caused by the fact that they are competing actively for business, whereas most insurers have a large captive market.
This is actually a major reason why many people do choose to consolidate their pension funds - you are far more likely to engage with investing the existing money wisely, and even adding to it, if you can more easily keep track of what it is doing.
In summary, then, taking all the above into account (and a few other things I have not yet mentioned):
Find out the current transfer value and fund value of each of your current policies. If the fund value is higher than the transfer value, that indicates that there is some sort of penalty for transferring away, which is obviously a negative point. However, in some cases you may decide that the performance of the fund has been so bad that it is worth taking the hit in order to try to improve things.
Ask each pension provider whether your plan has any guaranteed benefits attached to it. The things to ask about specifically are a) Guaranteed Annuity Rates (GAR), b) enhanced tax-free lump sum (i.e. an entitlement to withdraw more than the standard 25% tax-free on your retirement), and c) any guaranteed growth rates or bonuses that may apply. All of these things are usually lost if you transfer the policy, and depending on what they offer some of them can be quite valuable.
Ask what the annual charges are for each policy, so you can compare them with each other and with any new pension plan that you look at.
You are then armed with the information you need to make a decision. But casdave is quite right to say that if you are unsure, it is sensible to seek advice from an independent financial adviser with a pension transfer qualification.
Finally, bear in mind that no matter where you are now, it is (almost!) never too late to do something about your pensions and investments, and the earlier you start planning (and the more you can pay in), the better.
Just my non-advisory two cents, feel free to ask away if anything is unclear.
Thank you very much! casdave’s answer kinda made me abandon this thread, so it’s good to hear that someone can comment on the issues with impunity, albeit not providing advice.
As usual with these things, the answer raises more questions than I had thought it would answer. But there’s a lot to chew on. I am talking to an independent advisor in the next few weeks, but it’s good to be armed with some questions to ask. Thank you.
No problem - been waiting for this thread to come along for years! As I say, I’m happy to answer any other questions you have, but I can’t advise you even if I wanted to because I don’t have all the information that is necessary for that - I don’t even know how old you are, which is fairly crucial, and I wouldn’t ask on a message board anyway even if I were qualified to advise.
One thing I will add is that although there are many good advisers available, the company I work for focusses heavily on non-advisory business, and we get a lot of clients coming to us saying that they paid a lot of commission (or fees) to an adviser but felt they could have done a better job themselves. So I would say it is very important to be clear about what you are paying for, and to be happy that that gives you value for money. Bad advisers (and thankfully there are not so many around now) will just look to transfer all your pensions to whatever plan gives them the most commission, as long as it looks reasonable, without providing much (or anything at all) in the way of follow up service. A genuine independent adviser must give you the option of paying a fee instead of commission (which may in some cases be cheaper in the long run even if it costs more up front), and all advisers must disclose the level of commission they will receive.