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Will your pension leave you out of pocket?

Transferring your pension to a different provider could add thousands to the money you put aside for later in life.

3 min read


How many pension pots do you have? How much is each one worth? What does each scheme charge and what is its investment approach?

If you can’t answer these questions, you may want to think about simplifying your retirement savings by combining your pension pots in one place.


Declutter your investment cupboard

There’s a lot to be said about simplicity in life. One area that you could straightforwardly simplify is pensions. Having your pension savings all in one place can make it much easier to keep track of how much you have saved and to top up your savings with extra contributions or lump sums.

Transferring from one defined contribution (DC) scheme to another is often quite a straightforward affair. Using an online scheme like Coutts Invest, for example, it can usually all be done online and the pension providers will do the complicated administration on your behalf.

Research by the Association of British Insurers in 2018 showed that a third of pension savers had money in more than one pension scheme. The last 25 years have seen innovations like stakeholder pensions, simplification and auto-enrolment help multiply the number of pensions that anyone could have contributed to.

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“The difference between a 2% annual fee and a 0.9% fee could be a startling £65,000 over 20 years. Even if you have only 10 years until you want to take the money out of your pension you could miss out on over £20,000.”

Does your pension charge like a bull?

But there are reasons beyond convenience to consider transferring. You could save thousands of pounds in fees and charges, and therefore potentially have a larger pension to enjoy later in life.

The overall costs of saving in a pension have been coming down in recent years, but fund fees, platform charges and service fees can add up and a 2% total annual levy is not unusual for some older personal pensions. Some providers also add an inactivity charge – sometimes framed as an ‘active member discount’ – that means you pay extra if you stop contributing. While others could hit you with a contribution charge when you do pay in.

Annual charge levels of around 1% are more common these days. For example, the funds behind the Coutts Invest Pension have a 0.6% fund charge, and a maximum 0.35% platform charge, although this is reduced if you invest more. This means that the average Coutts customer will pay a 0.9% annual charge for a Coutts Invest Pension. But over the longer term, especially, high charges can be a big drain on returns. To see the effect of fees, consider the impact different levels of annual fees would have on a pension pot of £150,000. 


How much might you lose? Final size of pension pot relative to 0.9% charge


  After 20 Years After 10 years 
1.5% annual fee -£36,579 -£12,591
2% annual fee -£64,130 -£22,594
Source: Coutts & Co. Assumes an average annualised return of 5% on a £150,000 pension pot

As you can see, the difference between a 2% annual fee and a 0.9% fee could be a startling £64,000 over 20 years. Even if you have only 10 years until you want to take the money out of your pension you could miss out on over £20,000. 

We’ve assumed an investment return of 5% a year for this example to help illustrate the point about charges, but it’s important to remember that actual returns could be different. Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

Also remember, this is a rough calculation based on a number of assumptions. To get a better idea of what your own pension returns could be, log on to Coutts Invest where you’ll be able to get a projection based on your own circumstances.


The right approach to managing your money

Over time, some funds can lose their edge. Perhaps a ‘star’ manager moves on, or investors go elsewhere, leaving a fund so small that the manager is no longer paying attention. Research by investment fund performance website Morningstar published in February this year identified 194 ‘zombie’ funds with a total of £4.2 billion assets invested (as at 31 December 2018).

Could your pension pot be in one of these?

One of the key errors people make with their pensions is never reviewing their investment choices. For example, research by the University of Strathclyde in 2007 showed that a third of people with savings in an occupational pension scheme reviewed their investments less than once every five years or not at all. And out of the people that did look at how their pot was doing, 43% never made any changes to it. This can be a particular problem with some schemes where investors can set their own asset allocation from a range of investment funds, but then leave their future at the mercy of the changing tides of investment fortune. 

Most pension schemes now provide the option of straightforward multi-asset funds, with diversified portfolios. A Coutts Invest Pension, for example, offers a choice of five multi-asset funds of varying risk profiles, from lower risk to higher risk, and where the asset allocation is regularly assessed and adjusted by the Coutts investment experts.


Reasons to be careful

But there are reasons to be cautious about changing providers.

For example, if you have a defined benefit (DB) scheme – a type of pension that provides a set outcome, usually based on your length of service with an employer and your final salary – it may be worth hanging on to it. Generally speaking, they are more generous than the more commonly available DC schemes (where the outcome depends on the performance of the assets that contributions are invested in).

If you’re considering transferring a DB scheme to a DC scheme, you’ll need to get independent advice before doing anything. Many DC schemes, including the Coutts Invest Pension, won’t take transfers from DB schemes.

Some older schemes come with conditions that are somewhat rarer these days and are worth considering before giving them up. Some of the main ones to be on the lookout for before transferring include:

High exit charges – some pension schemes will levy an additional charge when you transfer out. This can negate the benefit of transferring to a lower-charging scheme.

Guaranteed annuity rates – annuity rates have fallen sharply over the last decade, and so a guaranteed level of income established when rates were higher can be a very valuable benefit, even including the effect of higher charges.

Minimum rates of return – guaranteed rates of return can offer security, particularly as you approach the time you want to take the money from your pension, but these should be weighed up against expected market returns and fee levels.

Additional tax-free cash – being able to take tax-free cash in excess of the usual 25% of your fund offered by legislation can represent a big, extra saving.

Protected retirement age – if you need to access the money in your pension pot before age 55, then this can be a benefit worth holding on to.

If you have any doubts about the value of these benefits in relation to another scheme, you should get advice from an independent qualified adviser.

It’s simple and straightforward to consolidate your existing DC pension pots into a Coutts Invest Pension and take advantage of our low-cost multi-asset funds with active asset allocation. Click here to find out more.


When investing, past performance should not be taken as a guide to future performance.

The final value of your pension fund will depend primarily on how much has been paid in and how well the fund’s investments have performed. The value of investments can fall as well as rise, and you may not get back the full amount you invest. 

Key Takeaways

If you have multiple pension pots, it could be worth transferring them to a single provider to help you keep track of your investments. In addition, high-charging legacy schemes and moribund ‘zombie’ funds could end up costing you thousands of pounds. While you should take care not to give away valuable benefits by transferring out of a scheme, it makes sense to periodically review your pension pots and ensure they’re fit for purpose.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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