The great pension consolidation continues. I've been asked as to whether I want to transfer my pension fund in cash or specie. I don't think there's a difference and I'd prefer to simply transfer into cash. Is there any reason to transfer the funds instead?The funds in the pension funds are all UK trackers or Japanese funds and I want to transfer them all to a Vanguard UK tracker fund.
If you transfer as cash you will be out of the market for as long as the companies involved take to complete the transfer. Could be days, weeks, or months. While out of the market you might miss a gain, or you might miss a loss.If you transfer in specie and then move to Vanguard once everything is settled in your new pension you are only out of the market for as long as it takes you to sell your current funds and buy Vanguard. At most a couple of days. Possibly less or even no time at all if your new broker handles direct fund transfers (in my experience most don't, but you might get lucky). And you may be able to stagger or phase your move from current funds to Vanguard to further reduce the risk, though watch out for any trading costs.Where I have the option I tend to prefer in specie. It can be expensive though when compared to cash -- up to £25 or so per line -- so weigh those costs against the possible missed gains. The smaller your pension pot, the less in specie is worth the added cost.
This is a real and difficult problem and happens to be one I am currently addressing myself.As far as my own situation goes, there are 2 significant differences between transfers in specie and transfers in cash.In order to effect a transfer in cash, you must first sell your current holdings, (which incurs dealing costs), then you do the transfer, then you re-invest your transferred cash into whatever new assets you choose, (which incurs a second set of dealing costs and stamp duty on top). The actual transfer will be relatively quick, so you won't be out of the market for very long. However, even a few days out will be enough to create a risk of adverse movement - ie if the market moves up whilst you are out of it, then your new holdings will end up worth less than the ones you just sold would have been if you had not sold them when you did.In order to effect a transfer in specie, you do not have to sell your current holdings, but you will typically be charged a transfer fee by your current provider - that could be much less than the dealing costs or much more, depending on their fee structure. Transfers in specie will take considerably longer than transfers in cash - typically several weeks. Whilst the transfer is proceeding, you are not out of the market but you are locked into your positions. If the market crashes during this period you will not be able to bail out but will remain strapped in the cockpit whilst it crashes and burns.I currently have my SIPP with a traditional full service (ie very expensive) broker and am considering moving to a cheap, execution only alternative. In my case the dealing costs incurred by a cash transfer would be very substantial - 1.6% to sell and then the more modest dealing costs of the new provider but with 0.5% stamp duty on top. By the time I add on the various additional charges which will be applied by the old/current provider, the total cost of transferring will be 2.75% of my pension pot, which in my eyes represents a non-trivial amount - about 6 months' worth of drawdown. The cost to me of a transfer in specie would be less than 1/3 of the cost of a cash transfer, so that makes it very attractive. However, a transfer in specie may take 3 or 4 weeks or even longer and I would be exposed to any market crash during that period. A crash could easily result in losses that would far exceed 2.75%.I am minded to go down the transfer in specie route but do a phased transfer - ie just a few holdings at a time, with a succession of transfers being done as each preceding one is finalised. That means that at any given time the majority of the portfolio will not be locked out but can still be dealt either at the old platform or the new. This approach has the advantage of avoiding BOTH the excessive cost of the cash transfer AND the risk of being stuck in a crashing market which comes with a one-shot transfer in specie, so seems like a good compromise, albeit a bit messy/tedious/laborious.In parallel with the migration of my pension to a lower cost platform, I am considering a similar migration of our ISA's - they have very similar problems to pensions in terms of cash vs specie. However, they do not lend themselves to a phased transfer - you have to do your entire multi-year, multi-holding ISA in one go, which is a pain.Still, as my kids would say, it's a good pain to have, I suppose.T
If you have an old plan, it is probable that many funds will not be accepted in specie by a new provider. And for old plans at age 75, you'll be forced to a new provider for drawdown.http://boards.fool.co.uk/age-75-rules-drawdown-12832994.aspx...
tournesol2,If I've interpreted your circumstances correctly then I think you're already taking drawdown from your current SIPP provider. One piece of information that may be useful in your planning is that it is not possible to partially transfer a drawdown 'arrangement', you have to transfer the whole arrangement in one go.Depending on how your current SIPP provider structures your SIPP (single arrangement or perhaps 1,000 arrangements) this may restrict your ability to do a phased in specie transfer.Also worth mentioning that, if you are only taking partial drawdown i.e. some of your SIPP isn't crystallised, then you can phase the transfer of the uncrsytallised part. It is just the drawdown part where you will probably face some restrictions.SippTechie
Sipp Techie...If I've interpreted your circumstances correctly then I think you're already taking drawdown from your current SIPP provider...Nope. Nope and Nope again. (I'll leave you to figure out what the 3rd negative refers to......):~)
On stamp duty - am I paying this either way. It seems that this is neutral if I'm going to be moving the funds to Vanguard.So as far as I understand it the options are (assuming stamp duty neutrality).CashUndisclosed sales fee (from old pension provider)£10 Sippdeal fee to buy (x1)Market risk of being out of marketSpecieUndisclosed transfer charge (from old pension provider)£10 Sippdeal fee x5 to sell (x5)£10 Sippdeal fee to buy (x1)Risk of being with wrong fund for periodAs a rule what is more expensive - transfer charge or sales fee?I don't mind calling all three old pensions providers and asking them the sales fee and the transfer fee. However, I am minded to go with cash.
In specie transfer out charges are typically higher than trading charges. For example, in Sippdeal they are £20 and £9.95 respectively.You seem concerned by stamp duty, but if you are buying Vanguard funds then you don't have to contend with it. You may however have to contend with Vanguard's 'dilution levy' which amounts to much the same thing. Be certain that the saving on TERs when you have finished this is worth that added cost (and it probably is, I'm just saying...).
In my case transfer in cash works out thousands of pounds more expensive than in specie - it might be different for you - the only way you can possibly compare the economics of the two options is by getting the fee structures of the 2 providers and doing the maths. It is not necessarily as simple as you imagine because providers apply fee structures which are quite different. For example my existing scheme administrator levies a fixed flat fee for the whole scheme to process an in specie transfer whereas the investment manager charges a flat fee per holding. So the cost for that one line of the calculation depends on the number of holdings. I've done the above for my current scheme on one side and 5-6 potential alternatives on the other and there are significant differences between them.
Charges are usually reasonable. The real problem frequently ignored, is spread the difference between buying and selling stock and funds. Thats where the big money is.cheers
"Charges are usually reasonable. The real problem frequently ignored, is spread the difference between buying and selling stock and funds. Thats where the big money is."Wouldn't I meet that if I transferred out through cash or specie (unless I want to keep the funds, which I don't).
Wouldn't I meet that if I transferred out through cash or specie?Yes, exactly.From your earlier post it sounds like you are switching from one tracker to another. Depending on what you already hold the spread could be minimal or nothing at all. OEICs have no spread (single price rather than bid and offer), and Vanguard funds are OEICs. You should be able to find the spread of your current funds from their reports. As they are trackers they are likely to have small or zero spreads too.In other words, for what you are doing the spread is quite likely to be almost, if not entirely, a non-issue.
Just as a note, I've heard back from two of the three pension companies and they will only transfer out in cash unless I'm already in a SIPP.This sounds like standard practice.
HiYou open the Sipp fill out a form and they arrange the transfer make sure they will do this before starting. No pension company is allowed to work through you, its always company to company.Cheers
I've heard back from two of the three pension companies and they will only transfer out in cash unless I'm already in a SIPP.Reading a little between the lines, it looks like these companies will only transfer out in specie if you already hold SIPP plans with them. In a non-SIPP you are probably invested in the pension company's own funds, and these will not be 'retail' funds available to platforms. That leaves cash as the only option for transferring to a new third-party SIPP.
Reading a little between the lines, it looks like these companies will only transfer out in specie if you already hold SIPP plans with them. In a non-SIPP you are probably invested in the pension company's own funds, and these will not be 'retail' funds available to platforms. That leaves cash as the only option for transferring to a new third-party SIPP. You're right about the SIPP having to be with them (and I failed to make this clear).Should this sort of thing be in the FAQs. It could help novices like me who are simply moving from a number of company schemes.
In a non-SIPP you are probably invested in the pension company's own funds, and these will not be 'retail' funds available to platforms. That leaves cash as the only option for transferring to a new third-party SIPP.Ching - more revenues generated for the funds industry via the bid-offer spread.
Just as a note, I've heard back from two of the three pension companies and they will only transfer out in cash unless I'm already in a SIPP. I am a little confused over your current situation hereDo you already have 3 different SIPPs invested in ETFs or OEICs unconnected with your current provider, other than that they hold them for you ? Or is this money in LIFECO own managed or extenally managed funds ? If it is in LIFECO funds, then I would not expect you to be able to transfer the Lifeco funds of one LIFECO into a different providers SIPP, unless the original LIFECO offered a "Trustee Investment Policy" into which the funds could be transferred, before that whole policy was then assigned to a SIPP. Even if you could do this, you would end up with paying fees to both the Lifeco whos funds you were continuing to use, and the new SIPP provider.
Hi Binlurkin,The situation is that I've got five different schemes, four old employers and three different pension providers.None of them were SIPPs(sippdeal is my first SIPP).I've had two of the three pension providers reply that they can only transfer out by cash (with no charge).
And the final provider came through today. So far all schemes (low cost, workplace schemes with household pension providers) only allow me to transfer out by cash. But they don't make it easy to find that out.
So far all schemes (low cost, workplace schemes with household pension providers) only allow me to transfer out by cash. But they don't make it easy to find that out. This leaves me totally non-amazed.Transferring out holdings in Lifeco pension funds in specie to a SIPP would be a major administrative pain, and might involve double charging as the original Lifecos charges would still be deducted from their units, even if transferred out to a SIPP.
This leaves me totally non-amazed.Transferring out holdings in Lifeco pension funds in specie to a SIPP would be a major administrative pain, and might involve double charging as the original Lifecos charges would still be deducted from their units, even if transferred out to a SIPP. Still, it took me two and a half weeks to find this out so it may be useful to others going down the same route.If I had started this process six or seven years ago, as I should have done, I think that I would have just petered out at this stage.
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