Transferring your Final Salary Pension to a personal pension arrangement may give you access to a large lump sum and offer you the freedom to invest and spend your pension pot as you see fit, but there can be significant costs and fees involved.
The amount you pay could impact your long-term wealth. So exactly how much does a Final Salary Pension Transfer Cost?
The full cost of a Final Salary pension transfer will depend on a number of factors:
- how much you pay for transfer analysis and advice,
- what type of investment you choose afterwards
- and how much you pay for ongoing advice.
It’s worth noting that if you stay within your Final Salary Pension scheme there are no investment charges made to your pension, these are shouldered by your scheme administrator. As a member of a Defined Benefit Pension scheme, the amount of money you receive is guaranteed for life and protected against inflation. Transferring out of a Defined Benefit Scheme carries significant risk and shouldn’t be considered without expert advice.
For most people transferring out of their existing DB Scheme is not in their best interests.
Defined Benefit Pension Transfer Costs
Figures from The Pensions Regulator show that in 2018/2019 alone over £34 billion was transferred out of Defined Benefit Pension Schemes.
Demand for transfers out of these gold-plated pensions schemes was driven mainly by high transfer value offers and the flexibility and freedoms offered within defined contribution arrangements that are not available within a Final Salary pension scheme.
With the huge demand for transfers the Financial Conduct Authority, who oversee financial services firms and financial markets in the UK have put safeguards in place to protect those with defined benefit pensions from giving up their guaranteed benefits without understanding the full risks and costs involved.
The FCA state that for transfers valued over £30,000, you will need to seek the advice of a qualified Pension Transfer Specialist. You’ll need to pay for any financial advice you receive, but the costs aren’t limited to the initial advice you receive.
Types of costs you might encounter include:
- Transfer Analysis and Advice Costs
- Ongoing Financial Advice fee
- Wrapper Charge
- Annual Management Charge (AMC)
- Discretionary Management fees
- Additional Fees & ad-hoc costs
1) Transfer Analysis and Advice Fees
Transfer Analysis and advice fees are paid to the Financial Adviser to provide the advice and carry out the transfer on your behalf. Final Salary Pension Transfers need in-depth analysis and can be a lengthy process, transfers can take weeks of work, sometimes months, depending on your scheme administrator and the availability of information.
Transfer analysis involves carrying out in-depth research:
- Understand your current and future financial position
- Understanding your goals for retirement both financial and lifestyle
- A full analysis of the benefits offered by your current pension scheme
- Risk profiling
- Transfer Comparator Analysis
- Planning investment strategies that fit your risk profile and allow you to meet your goals
Any recommendation to transfer must now be in the form of a ‘personal recommendation’ which means the adviser is responsible for the advice they give you. If in the future, you deem that advice to have been inappropriate, you have recourse through the financial ombudsman to make a complaint. Because of this, insurance premiums for firms offering pension transfer advice has skyrocketed. Pension Transfers are considered highly specialised and high-risk areas of business. You’ll have to pay for any advice you receive since your adviser is taking on financial risk by offering advice.
The amount you will pay will vary from firm to firm. You should ask for quotes before undertaking any advice.
Did you know?
The majority of complaints received about Final Salary Pension Transfers actually relate to delays caused by the adviser that resulted in losses to the client. Don’t shop solely on price – Quality and speed of service are just as important as cost. You may be able to negotiate your fee with your preferred adviser, it’s always worth asking.