Consolidating pensions advice


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Pension consolidation: is it all good news?




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Providing proper oversight over these outsourced activities is essential, given the agency issues associated with outsourcing in general, pensins with highly valuable and complex issues like investment management and advice in particular. Many schemes struggle to demonstrate clearly the benefit that is delivered from this expense. From an economic perspective, consolidating 6, ill-equipped buyers of investment management and advice makes eminent sense. A consolidated vehicle, for example the LGPS, is able to properly staff an internal pensions investment office with a chief executive, a CIO, a COO and, importantly, a chief risk officer.

The more professional the investment office, the Consolldating it will be to attract high-calibre staff. The larger the investment office, the easier it will be to provide career progression, retain high-calibre staff and reduce the impact of key-person risk. If properly staffed, the investment office will have the expertise to deal with investment-related technical and operational issues far better than the trustee board. The increased scale and expertise of an investment office servicing a large number of pension schemes allows efficiencies in the use of external consultants including actuarial, investment and legal but also in the use of internal resources.

The cost of risk and portfolio-management systems can be shared, as can the cost of risk analysts.

Pensions advice Consolidating

Other Consoldiating oversight expertise can be insourced, eliminating, for example, the fund-of-fund costs for alternative investments. In short, the pension fund can Cojsolidating run as a business. The list of advantages does not end there. A larger asset base makes the pension wdvice a more attractive proposition as a preferred investor or co-investor with other asset owners for non-public assets, enabling not just better fee Consokidating but also better asset diversification. This should improve the financial experience of members, sponsors and taxpayers in Cpnsolidating case of the LGPS.

Consolidation involves pitfalls, of course. It is advixe for consolidators, including the LGPS funds, to learn from some of the painful lessons elsewhere. Probably the most important lesson is not to underestimate the difficulty of moving from a single captive client model to a multi-client one. This requires not just systems, efficiencies and changes in working practice, but importantly a change in culture, which can take many years to accomplish. It is crucial to get the governance of the consolidated organisation right, with the appropriate levels of delegated decision making, incentive structures, and balance between internal and external resources.

We have already seen some of these difficulties being experienced within the LGPS environment. A larger fund value may reduce costs with some providers or pension platforms. Transferring to a new pension — such as a Self-Invested Personal Pension Sipp — can broaden investment choice. Old contracts may not allow access to the new pension freedoms introduced insuch as the right to withdraw capital from age If your existing pension provider has signed up to an industry-accepted paperless transfer service your transfer should be completed in about ten business days. Consolidation may mean the loss of valuable benefits, such as guaranteed annuity rates, which can be as high at 14 per cent.

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Guaranteed maturity values could also be lost, along with other perks, such as waiver of premiums and life cover. Consolidating a with-profits policy, where a large part of the fund's final value is in the terminal bonus at maturity, could mean you are worse off. While this is rare, an older contract may sometimes be cheaper or allow retirement at an age earlier than There may be penalties for transferring for unders. Cowboys may tempt you into investing in schemes promising unrealistic returns — especially those invested abroad — and your pension could be lost. If providers are not signed up to the paperless transfer service it could take weeks or months. If funds must be sold before the transfer and repurchased, the markets could turn against you.

Why you may not want to move pensions But there are potential disadvantages to moving away from older schemes.

Prudential's Smith-Hughes says: There may be penalties for transferring if the saver is under Richards says there has to be a stronger motivation. It does not make sense to transfer to a higher cost scheme just to keep things simple. There are upfront fees that can run into hundreds or even thousands of pounds — with ongoing annual charges also likely.


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