Exchange : Transfer Pension Scheme

2004
(Graeme Young)

Could it be time to seek expert professional help to review your pension? Following the Government's decision to introduce a 1% cap on charges to personal pensions through Stakeholder legislation, marketing campaigns from pension providers have concentrated on new plans.

However, there still exists a great number of old style pension plans which continue to operate under expensive charging structures. On costs alone, transfers to other plans should be considered.  As equity markets have declined over the last three years, and increased pressure has been placed on with profit funds, a number of companies have closed their funds to new business, but at the same time, have not altered costly charging structures.

Systems are now available which can compare charging structures of old schemes with transfers to new cheaper alternatives, to establish if transfer should be made, based on cost alone.  However, for funds which have now closed to new business, it is also likely that fund performance will deteriorate due to a lack of new business.

Unfortunately, such plans may apply significant exit charges if individual planholders decide to transfer to another provider.

In such instances, planholders need to decide whether to transfer both the existing fund and ongoing contributions or to leave the fund with the existing provider, but redirecting future contributions elsewhere.  However, no change whatsoever may be the most appropriate action.

Considering the above, individuals with pension plans which have been running for a number of years, should have them reviewed to establish if on costs alone, they are competitive, or whether a switch to a stakeholder costed plan should be considered.

Lastly, as well as costs being an issue, it may be that the relative performance of funds being adopted should be reviewed.