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Personal Pension and Investment Transfers


What is it?

The transfer of pensions and investments from one product to another and from one product provider to another is potentially a key part of an Independent Financial Advisor’s armoury in ensuring your financial affairs are arranged to best suit your circumstances and objectives.

However historically, both pre-financial services regulation and in more recent times, such transfers have not always been well explained to clients by financial advisors. As such we have put together this overview of some of the pros and cons and potential risks involved.

Why Would You Transfer Your Pensions Or Investments?

Ultimately this should always be for a reason that combines Costs and Benefits. You may select a product that is cheaper because you require a simple cheap product. You may elect to move from such a product to a more expensive product with more features because you wish to utilise these features and perceive them to be worth the increased cost.

Costs on financial investments are usually made up of a combination of initial charges and annual charges. Initial charges are normally bigger numbers, whereas for investments you will hold on to it is the annual charges that will add up to more in the long term. You will normally be shown an illustration or projection of benefits that shows potential outcomes from your investment based on the known charges and some assumed rates of investment growth. Where the assumed rates of growth are the same for your existing investment and the proposed new investment you will be able to establish the relative impact of the costs based on the difference between the projected outcomes. These are only accurate at the rates of growth the projections assume but will give you a good idea of which investment is likely to be more expensive before you take into account the features and benefits.

The Benefits are harder to summarise and harder to quantify. They may involve greater investment flexibility, better online access, more opportunity to get at your money, and numerous other possibilities. Your advisor will have tried to gauge in his conversations and meetings with you the relative importance of the various features and benefits available from investment and pensions that you could consider and will make his recommendation based on his view of their relative significance to you versus the costs involved.

Stakeholder Standards

Various investments and pensions are available that offer stakeholder standards. These will generally be low cost options that allow relatively easy access to your funds and a simple contract. Generally because of the low level of charges allowed to qualify as ‘stakeholder’ these contracts will not offer features available in more expensive contracts. Your advisor should explain as part of any investment or pension advice why he has not recommended a stakeholder product, if he has not.

Key Principles

1. You should not be moving to a more expensive pension or investment unless you are deriving a benefit you perceive to be worth that cost.

2. When considering the costs of changing pensions or investments you should ensure you have considered the impact of any surrender penalties on your existing investment. If your advisor has not made clear how he has factored this into his presentation you should ask.

3. If you are considering paying more in order to access a greater flexibility of investment you should be aware that a greater range of investments does not guarantee improved investment performance. Past performance is not a guarantee of future performance.

4. If you are considering paying more in order to consolidate a group of investments for ease of management and reporting you should be sure this is worth any extra cost.

5. If you are considering moving pensions or investments early in their life in order to benefit from product features available on maturity or later in the investment you should consider whether you are sure you will need these features and whether you could simply change investment nearer the time.

6. Some pensions and investments come with underlying guarantees of minimum surrender values or income levels. You should consider very seriously the implications of giving up such guarantees and if your advisor has not made the pros and cons clear you should ask.

Risk Considerations

  • The advice to transfer your pensions and/or investments cannot be guaranteed to provide a greater sum at maturity. In the event you are electing to transfer to a more expensive contract you will require improved investment performance to get a higher sum at maturity.

 

  • Transferring pension providers can be a lengthy process, the existing and new fund prices may fluctuate according to market conditions and that a loss may be suffered as a result.

For your own benefit and protection you should read this factsheet carefully. If you do not understand any point please ask for further information.