‘My pension is losing value, but I can’t cash it in or transfer – am I being taken advantage of?’

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Dear Becky,

I am not sure if this is the sort of query that you deal with, and I’m not sure who else to ask! 

My husband and I (56 and 48) both work full-time. I pay into my NHS pension (yes, I’m an underpaid, overworked NHS hero), and my husband pays into a personal pension. I also have an old pension from a previous job. 

We invest our savings through a company that takes a fee each month from the “pot”.

I no longer pay into the old pension and have been told I can’t cash it in or transfer it anywhere. Therefore, each month it goes down in value by this company drawing its fee. I worry it will be empty by the time I retire.

I have asked our adviser (from this company) if we are wasting our money going through them, but of course it’s not in their interest to tell customers to stop using them. 

My question is – are we being foolish and allowing ourselves to be taken advantage of?

Also, if we didn’t use this company, what do people do with their pension pots? 

It’s lucky I am a very good operating theatre practitioner, because as you can see I am not a financial person.

Any advice would be extremely welcome. 

Thank you,

Ambe

Dear Ambe,

I wouldn’t describe your predicament as foolish. The situation you describe – possibly paying a higher fee than necessary, which is eating into the value of your funds, while feeling powerless to move your pension – is depressingly common. 

This is more a consequence of various rules and practices in the complicated world of pensions than your lack of knowledge. 

It’s hard to say whether you’re being taken advantage of without knowing the fee, the amount and type of pension, the nature of the advice you are receiving and what the adviser fee also covers. 

The fee for the pension itself will be separate from the fee the adviser charges you, even if they come out altogether. One may be good value, and the other not. 

You need to consider and compare them separately to work out whether the charges are over the odds for each service.

From your description of the fund value going down, it sounds as though your pension is more likely to be the defined contribution “pot of money” kind. 

If that’s the case, then in theory it’s possible to move it to a pension provider you are happier with (i.e. one with lower charges). 

But do please check the type. 

If your old pension is “defined benefit” – meaning it is designed to pay out a set amount of income to you in retirement – or a “hybrid” scheme, which means it has a defined benefit element alongside a defined contribution pot, and it is also worth more than £30,000, then you must receive financial advice from a qualified adviser before you are able to move it. 

It sounds as though you do not trust your current adviser, but might prefer the idea of having an adviser in general. It might also be a good idea to compare the adviser fees you are currently paying with what others charge. 

You can try unbiased.co.uk to get some quotes. 

Putting aside adviser fees for a moment, whether you are being “taken advantage of” on the pension side of things really depends on the charges you are paying and what they cover. 

The first thing to do would be to find out this fee and try to compare with what you would get elsewhere. 

I say “try” because fees often cover different things between providers, and many of the features are labelled differently (almost as if someone is trying to make it harder to work out). 

To get a bit more clarity, you could ask the pension provider directly what the fee covers to see whether this matches up with what you have been told by your adviser.

To give you an idea of what fee levels should look like, an overall fee of more than 1pc would be considered relatively expensive. 

There is a cap of 0.75pc for default funds of occupational schemes that are used for auto-enrolment. It doesn’t apply to all pensions, but is a useful figure to have in mind when assessing value. 

Fees of 0.5pc or less would be at the value end of the cost spectrum. You do not always get what you pay for. 

Sometimes, slightly higher charges can be justified if, for example, if you are choosing a specific investment plan that requires more active management, or if there is a better level of service on offer. 

There are some older pension schemes that come with high charges, but with no discernible differences to much better value plans. 

I would say if you are paying more than 1pc, you are within your rights to ask for a detailed breakdown of what this fee covers. Take a look at some of the fees charged by other providers for similar plans. 

Moving £100,000 from a pot with a 1pc a year fee to one with a 0.7pc a year fee is going to save £300 a year. You are 48 – if you add this fee saving up over the next 18 years you are likely to be working (until you get to the current state pension age), that’s a potential saving of £5,400.

So if your pension is the defined contribution kind, and you don’t feel you are currently getting good value after comparing fees and service levels, then finding a better value provider for your old pension could result in a big saving over the years – and more money for you in retirement.

On your second question, what do people do with their pension pots, again the answer does depend on the type of pension, but also your tolerance for making your own decisions with your long-term finances. 

Some people choose to move their old pensions (the ones they can move, anyway) for convenience, control and also to save on fees. 

Those with more than one old pension often choose to bring them together to one place, known as consolidating, for ease and so they don’t lose track. This doesn’t seem to apply to you as you say you only have one old pension in addition to your valuable NHS pension. 

One other thing: as your husband is over 50, he is eligible for a free Pension Wise appointment, so if he hasn’t already had this, then get that booked in. 

Pension Wise is a Government-run guidance service that can help you explore your pension options, and it is under-used. You are eligible for one in two years, when you turn 50. 

As ever, email your questions to pensionsdoctor@telegraph.co.uk