One of my new years resolutions has been to give my finances a spring clean. I started by looking at my pensions and found that one of my old stakeholder pensions was charging too high a fee. As readers of this site know, fees are a huge drag on performance and can cost you tens of thousands over time. I thus decided to move this all pension into a lower cost Self Investment Personal Plan (SIPP). In this post, I detail what options people have when transferring pensions, the process of transferring a pension, how long it takes and what assets you can invest in.
Old Stakeholder Pension – Scottish Widows
Until recently, I had a corporate stakeholder pension with Scottish Widows. This was a pension from my old job and I have never paid attention to it until now. Looking at the performance has been absolutely shocking. My pension with Scottish Widows has only returned 6% per annum. As a comparison, a simple low cost index fund has returned close to 12% over this same period. Even I have returned 15% per annum investing my own money.
One of the reason the performance has been so lacklustre I due to fees. Scottish Widows charges a fee of 0.65% per annum for all assets under the management. As if that isn’t bad enough, the platform only allows me to invest in mutual funds that charge a further 1%. I was paying 1.65% in fees for substandard performance!
As soon as I worked this out, I did a search on all the various pension providers to see which was best for me.
Which Pension Provider I chose?
After doing the search, I settled for opening a SIPP with Hargreaves Lansdown.
Although Hargreaves Lansdown are not the cheapest, they charge 0.45% of the value of all stocks held, they do have numerous advantages.
The first thing is that HL have excellent customer service. The next point is that HL has the best user interface and widest range of stocks you can hold in a SIPP. But the most important factor for me was the strength of HL as a custodian. You see, when you invest in stocks and shares via a SIPP, you don’t actually buy them in your name, you buy them in the brokers name such as Hargreaves Lansdown or Youinvest. So if you bad broker/custodian that is likely to go insolvent, there is no point buying stocks and shares through them as you can only claim back £50,000 from the FCA (https://www.fca.org.uk/consumers/claim-compensation-firm-fails). Anything over that is lost for good!
So when looking at whom to transfer you pension to or whom to open an account with, go with a trusted name.
How easy is the pension transfer process?
Transferring a pension between providers is simple and straightforward and it can all be done online. In my case, this is the list of steps for the process:
- Open an account with Hargreaves Lansdown
- Go to the Transfer to your SIPP page
- Fill in details such as your current pension providers name, scheme name, scheme type, whether you want a partial or a full transfer and whether you want your pension to be transferred in cash or investments.
How long did it take to transfer my old pension?
As my pension transfer could be done electronically, it only took three working days. I completed the online transfer form on Monday evening and the transfer had been completed by Thursday evening.
What will I be investing my pension in?
Unlike my ISA which I am taking the dividend growth investing approach (LINK), I will be investing my pension using a total return focus. This means that I will consider all companies when investing in my pension, even those that don’t currently pay a dividend. To view my ISA investment, have a look at the ‘my journey’ section of this website.
As owner-minded investor, I will be making investments that have the following attributes:
- Simple, predictable businesses
- Consistent profitability (high returns on capital and free cash flow)
- Favourable long term prospects and reinvestment opportunities (compounding ability)
- Shareholder friendly management
- Significant value (cheap price)
The idea with these investments is that once I place a buy order, I hope to never touch them again. I want to run the pension investments almost like ghost ship. I want compounding to do the heavy lifting and the market to work for me. That is why it is important to invest in companies that have high returns on capital as well as buying them at god value.
I have so far made one investment in my HL pension as that is buying 15 shares of Phillip Morris International (NYSE:PM). For those people that are not aware of the fantastic compounding nature of tobacco stocks, I urge you to read my articles on the Tobacco Industry and Imperial Brands.
Over the coming days and weeks,I will be making more investments. I hope to have between 8-10 stocks in my pensions. I want it to be really concentrated and want to invest only in my best ideas. Once I am fully invested, I will be writing an article on all the investments. So stay tuned.