Sold the wrong pension?

[WhoKnowsWhereTheTimeGoes]

I decided to invest a lump sum into a pension scheme a few months ago because I had not paid into any scheme for several years and my (small) employer was not planning to start a scheme until they are legally required to in several years time. I had in mind that I would want a stakeholder pension for this and found an IFA via unbiased.com. The IFA talked me into having a personal pension rather than a stakeholder on the basis of access to a wider range of funds. I read through the paperwork when it all arrived and realised that the charges were much higher than for a stakeholder, I was within the 30 day cooling off period, but was within a few days of the end of the tax year (higher rate taxpayer, so I wanted to make the contribution ahead of that date, with a view to possibly doing the same the following year). So I let it go ahead as it would have been too late to get it into a stakeholder within the tax year.

It has since been niggling me ever since that I have made a big mistake here. I think I want to transfer it to a cheaper pension and cut my losses on the initial charge.

My questions are, have I any right to redress? I suspect not. Should I ask the same IFA to arrange this? I really don't trust him any more. Should I go it alone with eg a tracker stakeholder, bearing in mind that my employer has now said they plan to start a scheme next Jan so I almost certainly won't want to make any more payments or should I find another IFA?

If you only realised the charges were higher when the paperwork arrived, that means the IFA didn't do their job properly explaining the pros and cons. Since one of the main comparison points is the administration charge, that would be quite a big omission. It's a pity you didn't take advantage of the cooling off period because I think it might cost you more to transfer the funds out than it would to leave it be and start a new one. Worth checking but with a different IFA as the first one sounds like he doesn't listen. Stakeholder pensions are listed on comparison sites so, even if you go with a new IFA, you can already be forming a judgement before you talk to them

As for the first IFA I would contact them and make a complaint that they persuaded you into a more expensive product than you required. If you don't get anywhere with that you can complain to the FSA who regulate IFAs

Thanks - he did say that the costs were higher but they sort of blind you with all the numbers and he didn't actually provide a comparison with any stakeholder products, he got me to agree on the basis of more funds and that probably gets him off the hook somewhat. It's only when I've done that online myself and looked at the projections for the lifetime of the product that I've realised how much it will cost in the longer term.

I don't need to start a new one in order to invest any more money as my employer is now going to be starting one early next year, the choices are to transfer this one to a stakeholder or leave it where it is. In view of the huge gulf in the lifetime costs I'm tempted to cut my losses now and transfer out.

If I do complain, what would be a reasonable expectation of them? Or the FSA?

If you're now saying that he had advised yo uof the the higher admin costs then he can probably say you made an informed decision.

If he "sold" the personal pension on the basis of a wider fund range, he should have done an assessment of your attitude to risk and advised which of the personal pension funds to invest in. This should be documented in the suitability report he would have provided to you. If you are invested in funds that you couldn't not have accessed via the stakeholder then as you accepted the higher charges at the time of the sale and didn't take advantage of the cancellation period, I would say that it is doubtful that your complaint against the IFA would succeed. However if the funds that you are invested in are available via the stakeholder, and I don't mean exactly the same funds just that they have very similiar investment objectives and risk profile, then you could argue that you could have got substantially the same product at a lower cost, in which case I think you would succeed.

The first thing to do is complain to the firm, if they do not find for you, you can take your complaint to the Financial Ombudsman Service (free for you, £500 charge to the IFA).

If the worst comes to the worse and your complaint fails altogether you can transfer to a stakeholder, or possibly wait until your employers scheme is available and transfer to that (the charges may well be lower in the employers scheme that on an individual stakeholder). You should get the value of your fund as a transfer value but the pension company will confirm this before you do the transfer, so you will take a hit if your fund has gone down.

That's the thing, he did say they were higher, but made it sound as though they were only slightly higher, you sit there in the office and it's all a bit much to try and take in at the time. I think the one thing he didn't get right was that I said I wanted to have the possibility of investing more money but was not definitely going to, whereas his notes say that part of the justification of the high cost is that some of it is fixed and it will become better value as I invest more, as I clearly said that this was only a possibility not a certainty it isn't such good advice.

Thanks for your help, I'm not going to rush into any decisions as that's how I got into this mess in the first place but will spend a bit more time researching all the options. It's no wonder so many people avoid pensions!

That's an interesting point about fixed costs. Generally these days personal pensions and stakeholders tend to have % based charges. There is usually a annual management charge of x% plus a fund management charge of a variable% depending on the funds recommended. Some annual charges are tiered, so the higher your fund value the lower the % charge. If part of his justification for the higher charges on the personal pension being additional contributions in the future then I would expect to see a charge comparison in his suitability letter to show that he has demonstrated the impact of the charges on both plans. If you are going to complain, I would ask the firm how much commission would they have got from recommending a stakeholder over the plan that they did recommend. You should have a "cost of advice" statement on the projection that they have to supply so you can compare. I wouldn't be surprised if the personal pension paid more commission.

Also if he was an independent financial adviser he should have given you whole of market advice, I'd be very surprised if he couldn't have found a stakeholder that could offer a wider fund range at a lower cost than a Personal pension. There has to be a compelling reason to recommend a personal pension over a stakeholder and he doesn't sound like he had one.

Thanks Thisis. I just don't know what to do, I am really kicking myself for not starting this earlier in the tax year so I could have pulled out in the 30 days and still had time to get it invested in the tax year.

I'm just worried that because I didn't challenge the report that actually says he only recommended this plan on the basis of further contributions I haven't got a leg to stand on. I had 30 days cooling off and I missed the boat.

I suppose I could ask him to provide me with a transfer value and see if it is worth just cutting my losses a bit. I don't want to get in touch really though in case I mess things up even more. Could I ask a different IFA to do that? Or do you have to speak to the one you took it out with.

Don't panic too much, the PPP funds could be very good, but agree it sounds as if you should be in a stakeholder, charges of no more than 1%. You can get stakeholders for 0.55% (ie nil commision basis) that are perfectly good and just pay your adviser a fee for their time.

I hope it works out, have pm'd you if you need a hand finding out the facts.

ps PPP's do generally pay more commision (99% of the time in fact!!) but there will not be a stakeholder out there with the range of funds any PPP these days has. HOWEVER, I am a strong believer in the fact that you can create a decent portfolio with the stakeholder funds unless you want a particularily adventurous portfolio. And if she was going to pay more in in the future then maybe he should have looked at a SIPP usuing passive investments which would probably end up similar price to a stakeholder.

I have never sold a PPP before as I simply don't see the point when SIPPs are so cheap these days.

Stakeholder has around 30 funds, PPR around 100-250 funds and SIPP over 2000 funds..broadly speaking.

stakeholder charges around 1% (can get 0.55% if doing a fee basis with IFA), PPP 1.5 to 2% SIPP anwhere from 1% to 3% depending on how all singing and dancing you want it.