Fees paid by individuals transferring out of their defined benefit pension scheme have hit their highest levels since 2018, according to XPS.

XPS warned that savers could be out of money 10 years earlier as a result of the costs of a pension transfer. XPS Pensions Group’s annual member outcomes survey, published this month, found members transferring in the year to March 31, 2021, faced average total fees of 1.9% each year, including new product charges and ongoing financial advice. This is a 10% increase from the 1.7% charged the previous year and is the highest level seen since XPS’s survey began four years ago. XPS said the increase came as pension transfer values rose significantly over the same period. It found the number of people completing a pension transfer was 23% down on the previous year but the average transfer value paid increased by 29% to £375,000. The slowdown in transfer activity over the last 12 months is, perhaps, unsurprising since most of the year was spent in lockdown. Interestingly, it’s been those with the largest values who have continued to transfer. This, together with the reduction in choice for members transferring, may explain why average charges have increased by 10% since last year. While commentators believe that an average total fee of 1.9% does seem slightly high, it, perhaps, reflects IFA firms needing to recuperate more ongoing costs in order to make the initial advice and red tape worth it.

The end of cheap mortgages?

Homeowners are being urged to consider locking in with a low fixed rate mortgage, as the price of home loans may soon surge. This is because the price of mortgages partly reflects Bank of England base rate – currently at record lows of 0.1%. When interest rates were slashed from 5.5% to 0.5% during the financial crash 13 years ago, many assumed that the drop would be temporary. The UK had never had a base rate so low, and because rates had fluctuated between 4% and 7% since the early 1990s, analysts and bankers alike assumed the central bank would increase the rate again within a few years. Due to the slow economic growth that followed, however, the Bank of England’s base rate stuck at 0.5% for seven years before a small fluctuation and then dropped to a record low of 0.1% last year as the UK grappled with the coronavirus crisis. Bank of England governor Andrew Bailey warned on Monday that this rate could rise next year to help offset rising inflation. But homeowners could hedge against this by taking out a fixed-rate mortgage, which are currently extremely cheap. Doing this soon would mean being protected for a bit longer if the base rate does go up next year – and mortgage rates with it. When you come to the end of your fixed rate, you can go to a lender and fix a deal six months in advance. Being able to prepare and look at your options now is important. The cheapest mortgage on the market is 0.79% for a two-year fixed rate loan, from lender Platform – the cheapest-ever UK mortgage. However, the deal does have some strings attached. You cannot apply if you are borrowing more than 60% of the value of your home, and it has a high fee of £1,499. Fixed-rate mortgage prices are heavily affected by swap rates – the rate at which mortgage lenders borrow money from one another. When swap rates fall, so do fixed-rate mortgages. It’s not an exact system, but it’s a good rule of thumb. As swap rates have been so low this year, and for most of 2020, fixed-rate loans are falling in line with this.

Financial Advice Including Pension Advice, Bristol

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