Pension transfer

[Jultay]

I'm age 56 and looking to retire from my job of 32 years . My pension transfer out value is around £250,000.
I'm considering a transfer out and have been quoted a fee of £7500 which is around 3% for my FA to arrange this and a monthly fee of around £150 a month .
Does this seem quite high or is that standard sort of fees for FA to charge.
Would love to hear people's experiences of doing this transfer also please.

I am not a professional this is just the opinion of a lay person with no special experience beyond reading articles about pensions in newspapers.

Those fees do seem very high indeed.

The online pension calculator I just plugged the number into says that a pension pot of £250,000 is enough to generate an annual income of around £12,000 pa. I am sure you what spend half an hour googling and find out if that is generally what a few different calculators confirm. Anyway that figure would be what you could achieve without active management from a FA.

You can also put the funds into a drawdown scheme where you take a higher income but are actively using up the capital as you go, and you are effectively betting that you will die before the money runs out.

The question will be how much difference is the FA suggesting they can make by active individual management of the investment rather than using the normal (non FA managed) schemes. If they will be boosting the income by more than £300 per month and effectively splitting the proceeds with you then maybe that's fair but tbh I doubt that kind of income boost is achievable. Tbh I think that the FA management option is aimed at larger pots than that.

I'm assuming you have a final salary/Defined Benefit scheme. Since 1st October 2020 all DB pension transfer advice has to be charged a fee, regardless of the outcome of that advice (I.e. whether the advice is that a transfer out is suitable or whether the outcome is do not transfer).

The FCA also stipulated that the fee for full advice had to be in line with other fees charged by a firm for investment advice. It is usual for that to be done on a percentage basis of the amount of the sum to be invested, as is the ongoing advice service fee. You may find a firm who will charge less than 3%, maybe 1% but with a 1% ongoing fee.

It is also a requirement that firms offer an Abridged Advice service as a cheaper initial alternative to Full Advice for pension transfers. This has a maximum cost of £750 plus vat. It will have one of two outcomes, either Do Not Transfer or Unclear. It's a way of making sure you don't pay thousands of pounds for the same Do Not Transfer outcome that you may get from the Full Advice process.

If it's actually a defined contribution/DC scheme that you have then there is not the same legal requirement to take advice but you'll find the fee charging structure is similar as it's still investment advice and the FA taking responsibility for your money. You're paying not only for their knowledge and experience but also their professional indemnity insurance to protect your interests.

That’s quite a high fee. Do you have a defined benefit pension? I looked into this but was advised to keep my DB as it is. The risk in transferring it was too high.