Considering moving my monies into my work-place pension scheme. Would this incur further costs?
18 April 2023
Question by Rachel
After my divorce last year I consolidated several smallish pensions into one pot through a new financial adviser.
I've now checked and I seem to be paying nearly 2.5% pa to the adviser on an ongoing basis, as well as the initial one-off fee last year. I am 56 and I'm not able to contribute further to the pension pot (I'm lucky that my earnings at £280k pa are relatively significant but they are now above the pension threshold), so it's simply a matter of a yearly decision where the money is invested, i.e. it's not complex nor time-consuming to manage my monies.
Note my pension pot at approx £600k is not sufficient to fund my retirement (plus I have a large mortgage following the divorce) so it's important at this stage in life that I maximise my pension's potential growth. I think a charge of over 2% is high and I'd be tempted to move my monies into my current work-place pension scheme, or somewhere else, but I wonder if this would in itself incur further costs that might balance out the relatively high annual fee I'm currently paying.
I was in such a state with the divorce a year ago that I accepted the advice given was sound - it might well have been but I'd welcome your thoughts.
Answered by Chris Broome
Good morning Rachel,
Thank you for sharing all of that information, and about your recent life transition. A lot of change and big decisions made, ahead of you entering the next phase of your life.
Ultimately, it's about finding balance between service, value, and cost.
And, about understanding the breakdown of the current 2.5% pa cost you're paying to the adviser - assuming for example - 1% for the adviser + 1% investment funds + 0.5% custodian/platform costs. A cost of 2.5% per annum is roughly the industry average and, like you, I think it's too expensive.
But, as an additional rate taxpayer, and in an environment where tax rules change most years, it'll be 'essential' to retain some level of financial advice support ahead of your well earned retirement. The value that you will receive (above just pension advice) will far outweigh the cost you pay.
Support which should include (1) updating your lifetime cashflow forecasts (visually showing you the impact of debt repayment, pension growth, excess income being saved, and how tax interacts), (2) tax planning opportunities, (3) debt management, (4) pension advice and investing, (5) plus many other financial planning areas, and (6) ongoing administrative and emotional support where needed.
If you're not receiving all of the above, and you're concerned about the level of fees you're paying, then you're 100% correct in having a re-think about who your financial professional is.
Transferring your pension pot directly into your workplace pension provider will certainly save you money. But, it would be at the expense of not receiving any form of ongoing advice or financial planning support. Is it worth the risk?
What if you miss a tax planning opportunity? Or, you inadvertently make a mistake that could have been avoided?
What if you could receive the support you need (including in areas you've not thought of yet) but at a lower price point?
For example, based on a pension pot of £600,000, the total ongoing cost you'd incur under Longhurst would be c.1.3% per annum. This would cover Longhurst, the investment funds, and the custodian. We would also consider taking a new client on, with existing assets, and not charge an initial fee - meaning no cost to change (subject to understanding a lot more about the work at hand first).
There are also lots of other financial planners out there who can help you. Simply look for one that is Independent, Chartered, and ideally flat-fee based. This way you'll increase your chances of balancing out the service, value, and cost piece.
If you message me directly I will forward you an article we wrote exploring the impact of fees over multiple decades. It's a good read.
And I'm available if you'd like to talk this through any more. No cost or obligation.
Otherwise, I wish you success with your decision making, you're on the right path.