Fidelity International has launched a nine-week cashback offer paying between £250 and £2,500 to customers who transfer a pension into one of its Self-Invested Personal Pensions (SIPPs) or make a qualifying lump-sum contribution. The move is the latest sign of an increasingly competitive market for pension savings, with providers seeking to persuade customers to move money that may have been accumulated over decades.
Providers compete for pension pots
There are signs that pension companies are beginning to adopt tactics more commonly associated with the current-account switching wars, where banks regularly offer hundreds of pounds in cash to persuade customers to move. For example, Santander is currently offering £240 to eligible customers who switch their current account and meet its conditions, while RBS and NatWest are offering £200.
But pension pots are potentially worth vastly more than current accounts – meaning providers have a much bigger prize to fight over. Fidelity is not alone in using cashback to attract pension business. Interactive Investor is currently advertising up to £3,000 cashback for new customers who deposit or transfer at least £20,000 into a SIPP, although its offer ends on September 30.
Cashback tiers and warnings
The Fidelity deal offers £600 on transfers between £100,000 and £199,999, £1,000 for £200,000 to £399,999 and £1,500 for £600,000 to £799,999. The maximum £2,500 is available for £1million-plus transfers. It means someone with a large pension pot could potentially pocket a sizeable cash reward simply by moving their money – although savers should not make a decision based on the incentive alone.
Fidelity itself warns customers to compare the charges, benefits and features of their existing pension before transferring. This is particularly important because some older pension schemes can contain valuable guarantees or other benefits that could be lost on transfer. The firm said its SIPP can give investors greater control over where their money is invested, with access to funds, shares, investment trusts and exchange-traded funds.
Considerations beyond the incentive
Georg Bauer, head of personal investing, strategy and product at Fidelity International, said pension savings could become fragmented as people changed jobs and circumstances. He said the cashback offer provided an additional incentive for investors to review their existing pension arrangements. Fidelity's offer is being launched at a time when millions of workers have accumulated multiple pension pots during their careers.
The attraction for providers is clear: once a pension pot has been transferred, the firm can potentially earn fees from managing the money for many years. But savers need to look beyond the headline cashback. A difference of just a fraction of a percentage point in annual charges can amount to thousands of pounds over the lifetime of a large pension pot – potentially dwarfing a one-off cashback payment.
Investment performance, the range of funds available, customer service and the flexibility offered when taking money in retirement can also be more important than the initial incentive. There is also the question of whether the provider offering the biggest cash reward is necessarily the best home for a particular pension. Fidelity's cashback will be paid into customers' cash management accounts within 90 days of the offer closing. However, where transfers have not been completed by then, payment will be made within 90 days of completion.
The growing battle bears a striking resemblance to the current-account market, where banks have spent years trying to lure customers away from rivals with switching bonuses. The difference is that the sums involved in pension switching can be dramatically larger. A £200 bank switching bonus might be attractive for someone with a modest current account balance. But a pension provider winning a £500,000 or £1million customer has secured control of a much more valuable pool of assets.
For savers, the new incentives could therefore be worth considering – but only if the underlying pension deal stacks up. The golden rule is simple: don't move a pension just because someone is offering you free cash. A cashback payment of £2,500 may look tempting, but it could be a poor bargain if the new pension has higher charges, poorer investment choices or means valuable benefits are lost.
