More and more savers are choosing to oversee their own pension as professional managers fail to protect their money from falling financial markets.
David Bleackley, a 57-year-old from Nottingham, is one of the many savers to have taken their retirement savings into their own hands. He moved his Aegon pension to a self-invested personal pension, or Sipp, after he took early redundancy this year.
“My employer wasn’t going to pay into my pension any more, so I had two options: stick with my workplace pension provider, Aegon, or transfer it to a Sipp,” he said.
“The fees were the obvious factor for me. I chose Interactive Investor as it charges a set amount each month, whereas Aegon would have charged me a percentage fee. This didn’t seem right as it would have been hundreds of pounds more expensive.”
A fixed-fee structure works in favour of savers who have built a sizable pension over their career. For example, a saver with a £100,000 Sipp portfolio would be charged a fixed fee of £12.99 a month at Interactive Investor, assuming it was invested in funds and they made no trades. Aviva would charge the same saver £31.25 a month, AJ Bell £20.83 and Hargreaves Lansdown, Britain’s largest broker, £37.50.
Pension firms have reported a wave of Sipp transfers since the pandemic as cost-conscious savers seek to reduce their charges. At Hargreaves Lansdown transfers rose by 15pc between September and October alone, while at AJ Bell the number of Sipp transfers was 20pc higher than before the pandemic.
This year savers have fled workplace pensions’ “lifestyling” process, which changes your investments as you approach retirement. Lifestyling typically involves moving money from stocks to bonds, which are perceived as less risky. However, this method has failed to protect savers as share and bond prices have both fallen this year.
Older savers with “lifestyled” pensions have seen the value of their pots fall by much more than younger savers, who typically have “riskier” investments. In an illustration of the damage done by large bond holdings, the Vanguard LifeStrategy 20pc Equity fund, which has 80pc in bonds, has lost 13pc this year but the LifeStrategy 80pc Equity fund, which only has 20pc in bonds, has fallen by only 7pc.
Mr Bleackley, who would have owned more bonds in his lifestyled pension with Aegon, has been able to manage his own exposure to them and limit his losses.
“Overall, my portfolio has suffered a bit this year, although whose hasn’t?” he said. “But my bond holdings in particular have not been great, so I decided to sell a lot of them.”
A lot of factors to consider
Helen Morrissey, of Hargreaves Lansdown, said that bringing multiple workplace pensions under one roof could help savers plan their future more easily.
Consolidating pensions can bring real benefits,” she said. “Having one view of your pension wealth gives you a better idea of how much you have, which can lead to better decision making and less administration.”
Alice Guy, of Interactive Investor, said that while bringing your pensions under one roof would make them easier to manage, there were other factors to consider.
“Many pensions taken out before April 2006 include an option to take more than 25pc as a tax-free cash lump sum,” she said. “But other older plans can come with guaranteed annuity rates, or ‘GARs’, that are higher than those currently available on the annuity market, so there is some weighing up to do.
“It is really important to check your charges, including any potential exit fees that your current provider might have. You might find that you are paying far more than you need to.”
She added: “It’s worth remembering that ‘defined benefit’ plans pay a pension equivalent to a proportion of salary, based on length of service. That’s guaranteed, but moving to a ‘defined contribution’ plan such as a Sipp means giving up any guarantee.”
Workers with a defined benefit or “final salary” pension have been spooked by plummeting transfer values this year. While these pensions are not a pot of money but a promise of an annual income for life, they can be transferred to a defined contribution pension as a lump sum. But the average 64-year-old who transferred at today’s rates would get almost £100,000 less than they would have done last year, according to XPS Pensions, a consultancy.
While DIY pensions can help savers reduce costs and take control, managing your own money can add to stress and lead to emotional decision making.
“I probably look at my pension too much now,” said Mr Bleackley. “Interactive Investor has a very good app, but it means that I am looking at my investments every day. It is hard to wean yourself off.”
The Financial Conduct Authority does not allow DB transfers worth £30,000 or more without proof that you have seen a financial adviser. While this does not affect the transfer value directly, the cost of advice can reduce the final amount you receive.