Pension warning over cash bonuses that could leave YOU thousands of pounds worse off
SAVERS are being warned about cash bonuses being offered to move pension pots that could leave them thousands of pounds worse off.
Firms offer free cash payments of up to £4,100 to tempt in new customers with self-invested pensions – but experts warn there are dangers and many loopholes to jump through.
We explain how they work and whether YOU could be left out of pocket.
HOW DO THEY WORK
Free cash rewards are given to savers to transfer their pension from one firm to another.
You could also get a free cash bonus by opening a SIPP.
Companies offer them to try to attract customers and then they make money by charging a fee to manage the pension.
A SIPP is a type of pension you can set up for yourself. Over 800,000 people in the UK have one, according to Intelligent Partnership.
HOW MUCH CAN YOU GET?
The amount you get depends on the offer from the pension firm and the size of your pot.
The top offer from Invest Engine currently pays up to £4,100.
You get £100 for opening an account and then an extra £4,000 depending on how much you save into your SIPP.
However, many of the offers require you to pay in large amounts to get the maximum bonus.
For example, with Invest Engine, you’d need to pay £3million to get the full £4,000.
Pay in £100,000 and you’d get just £300.
Other offers also have minimum amounts that must be paid in before you can access any cashback.
Freetrade pays up to £2,000 for SIPP transfers but this is via 1% cashback, so you’d need to save £200,000 to get the maximum.
And there is a minimum requirement to pay in £10k to get any payment.
Some firms offer smaller bonuses for opening an account.
Santander customers can get £1,000 for opening a SIPP and you can use the account to transfer in other pensions – but you need to pay in at least £5,000 to get any bonus and £100,000 to get the maximum.
FEES VARY WILDLY
Firms offer different fees, which can make it hard for savers to compare.
For example, Interactive Investor has a monthly fee of £5.99, which then rises to £12.99 when the pot grows above £50,000.
While Santander calculates its fee as a percentage of your pot and Invest Engine doesn’t charge a fee.
Gavin Perera-Betts, chief customer officer at Nest Pensions, said: “Incentives often distract from the important details – such as fees and charges or investment performance — that ultimately determine the true value of a pension.”
He said that every day Nest sees people transfer their pensions to providers with higher charges, which could be eroding their savings over time.
Meanwhile, research from The People’s Pension released last year revealed that 20% of people would transfer their pension after seeing a cashback offer of just £100.
This is despite the fact that higher fees charged by the new pension would have left them more than £1,000 worse off after five years.
DANGERS TO WATCH OUT FOR
If you want to take advantage of these offers then first make sure a SIPP is right for you.
Pick a provider that offers you the best value for money for your circumstances, not the highest bonus.
Steve Webb, a former pension minister and partner at consultancy Lane Clarke and Peacock, said: “People should be very wary of choosing where to put their hard-earned pension savings on the basis of a cash incentive.
“Choosing the wrong place for your pension can lose you vastly more over your lifetime than you might gain for a short-term cash reward.”
Check the fees your new provider will charge and compare them to what you currently pay, he recommends.
You may also be charged to leave your current pension early.
Zoe Alexander, from the Pensions and Lifetime Savings Association said you should make sure you are not giving up perks if you swap providers.
She said: “Check you are not giving up important benefits such as life insurance or death benefits through your workplace pension.”
For example, some workplace pensions will pay a lump sum or pension to your dependents if you die while still employed.
Others will let you access your pension at a younger age.
You could miss out on these perks if you transfer your pension to a new provider.
WHERE TO GET ADVICE
You can get free and impartial advice from Money Helper by calling 0800 011 3797.
A pension specialist will help you to figure out your options so you can make the best decision.
If you need help to choose a pension or review your retirement options then an independent financial adviser may be able to help you.
These advisors are authorised to give you advice and recommend suitable pensions products and investment options.
Some advisors will offer you an ongoing review which can ensure that your finances remain on track throughout your retirement.
You can check if your financial adviser and firm is regulated using the Financial Services Register.
You will need to get financial advice if you want to transfer money from certain pensions. This rule has been in place since 2015 and is designed to make sure you are aware of all the pros and cons of transferring.
If things go badly after poor advice about your transfer then you can use the complaints and compensation schemes available.
Common pension mistakes to watch out for
YOUR pension can help you to build a substantial nest egg for your retirement.
But you may end up with less than you think if you fall for common pension mistakes.
Almost a fifth of people do not know how much money is going into their pension, according to a recent Hargreaves Lansdown study.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said this means you are less likely to know if you are on track when saving for retirement.
She said: “Take time to check what is going in and see if you can afford to boost the contribution. Even small increases over time can make a big difference.
“If you can’t afford to pay more in right now then it’s worth checking back next time you get a pay increase or a new job.”
Check how much your employer will match your pension contributions, she advises.
“Not taking the time to check can see you miss out on money,” she said.
“Some employers will operate what is known as a matching contribution, where they will boost their contribution if you boost yours.
“This can mean a lot more goes into your pension with only a relatively modest uplift from you.”
Make sure you track down missing pension pots you may have lost when you changed job or address.
Around three million pensions have been lost, according to the Pensions Policy Institute.
Helen said: “Even relatively small pensions can grow over time, and you could be missing out on thousands of pounds.
“If you think you’ve lost track of a pension then contact the government’s Pension Tracing Service.”
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