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  1. #1

    Change of Pension Funds

    I need help, would someone be so kind as to answer a few questions?
    My pension adviser has told me to move my pension funds to new ones although Ive had these funds working for 4 years and doing OK.
    Should I have kept them in the previous funds and earn the compound interest?

  2. #2
    May be the first thing to do is ask your IFA to clarify the reason he is suggesting you change.
    He should have, may be he did but failed to phrase it in appropriate language - ie not finacial gibberish. Also clarify whether or not the total cost to you will be changeing and if so how (in /P)

    Chances are its either because the performance of your existing funds has dived and he thinks there are better alternatives or simply to reduce costs (or both), which brings up the third reason - the recent changes to the fund charging regime.

    From the beginning of the year all platforms/IFAs etc have to charge for their services separately ie the commission they earn can nolonger be bundled into the initial / annual management charges of the individual funds that you buy. In theory all pre 2014 holdings can remain in bundled funds but all new purchases/switches have to be done using the new structure, into what is know as clean funds. A switch now would result in your funds becoming clean class funds.

    To make life simple lots of platforms/brokers etc are changing everything to the new charging scheme without necessarily switching funds and then they simply return all commission they get from the bundled funds back to you as cash or extra units.
    There is a lot of work involved for the fund managers to switch fund class so there is a reluctance to do a big bang switch. By 2016 however all funds must be switched into clean class.

    Unfortunately the two systems aren't necessary equal so you could find yourself worst or better off depending on what type of funds are being held (passive index trackers or active).

  3. #3
    I have a fund called Dirty_Fund_1, with a AMC of 1.5%, made up of 0.75% to the manager, 0.25% to the platform and 0.25% to the IFA and Dirty_Fund_2 with AMC 0.2%, 0.1% to platform and nothing to the IFA
    Each component is not fixed and change between funds/platforms etc

    The new Clean_Fund_1/2 only has an AMC of 0.75% and 0.2% respectively which covers the fund managers commission only. The missing 0.75%/0.2% is made up by the buyer eg you paying the platform and IFA directly (either as cash or by having clean fund units cancelled).
    All things being equal there is in theory fundamentally no difference.

    Now because each layer is charging separately you IFA for instance may decide he wants 0.3% of all assets held, which may be the average he gets over all clients/funds - suddenly your cheap fund is now costing you 0.5% without adding the platform charge on.

  4. #4
    Have none of you considered a SIPP? Doing it yourself? Making your financial adviser find a proper job making something useful? No? Well, the fool and his they say.

  5. #5
    Something your FA won't dwell on - your pension dies when you do. Invest in a series of funds within ISAs (there is plenty of good advice going free) and have a sizeable nil tax paid sum to leave to you family.


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