Our experts give their take on the proposed pension transfer ban.
Commenting on Ros Altmann’s call for a six-month ban on all pension transfers, Richard Wilson, Chief Executive, interactive investor says:
“In falling markets, one of the few tools investors have is the ability to control their costs, and if necessary, find a cheaper provider. So, it is disappointing to see someone of Ros’ influence, who has always championed the consumer, calling for the only power that investors have – the freedom to move – to be taken out of their hands. This, for the sake of sparing a few pension fund trustees a headache, is ludicrous and anti-competitive.
“Investors do not like having their assets locked up – if we’ve learned anything post Woodford, and after several more property fund suspensions, we ought to know that. Furthermore, suspend pension transfers for a period, and expect a significant backlog on the other side, which is terrible for consumers.
“Inertia is one of the key challenges to competitiveness in the pension industry. The current crisis is likely to create a moment when consumers finally have the time and inclination to try to understand and get the best value from their pension.
“Meanwhile, a ban on pension transfers at this precise time will effectively protect the status quo; the time made available will not allow or cause companies to spend time cleaning their data or correcting anomalies, unless they were already planning to do so. An undertaking like this, requiring resources for a new and complex project is not something any business will be contemplating with the staff dispersed and stretched. Carrying out routine processes, such as transfers is, though, something that can be undertaken.”
There is a better way
Moira O’Neill, Head of Personal Finance, interactive investor, says: “With interest rates so low, and global events influencing stock market performance, it’s more important than ever to track down your pensions and be clear on what you are paying for them.
“Many investors choose to bring all their pensions together on one investment platform ahead of retirement. You can view them at-a-glance, you don’t have to keep digging out paperwork from different companies and you can make changes if you believe that some investments aren’t working for you or are no longer suitable for your risk appetite and/or objectives.
“You can see what you’re paying and more easily compare costs, making sure you’re getting a good deal and benefit from paying a single (often lower) charge for one larger fund, rather than separate charges for several smaller funds.”
Never make a decision without all the facts
Moira O’Neill continues: “While there can be advantages to having all your pensions on one investment platform, it’s not the right thing for everyone and there are a few things to think about.
“You may have what’s called a ‘defined benefit’ pension. These pay out a pension equivalent to a proportion of your salary which is determined by how long you worked for that employer, rather than providing a fund for you to buy an annuity or invest in a drawdown plan. Your pension is guaranteed and if you transfer it to ‘defined contribution’ pension elsewhere you’d be giving this guarantee up and may not be able to secure the same level of income.
“Certain types of defined contribution pensions will have valuable benefits attached that you might lose if you transfer them. Some include guaranteed annuity rates (GARs) that promise income considerably higher than you could achieve on the open annuity market and there can be guaranteed growth rates too.
“Exit charges on older pension plans can be substantial and may even cancel out any financial gain to be made by the transfer.
“Workplace pensions also need careful consideration as they may have additional benefits, such as life insurance, which could be costly to replace. If your employer is still making contributions to a workplace pension, they are not required to pay into a new plan instead.
“How you are invested can also make a difference. With-profits funds, for example, may apply what’s called a ‘market value adjuster’ when you leave which could reduce the amount you have available to transfer. These funds pay out profits in the form of bonuses (each year and at the end of the investment term). If you leave then you won’t receive any future bonuses which, in the case of the end of term (or ‘terminal’) bonus can be a substantial amount.
Gather all the facts and consider financial advice
If you’re thinking of transferring any ‘safeguarded benefits’, such as pensions with a guaranteed annuity rate or a defined benefit pension worth more than £30,000 you must seek professional financial advice, according to the industry regulator (The Financial Conduct Authority).
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