I plan to retire this year and am considering the best way to take benefits from my three pension pots.
Having established their value with my former employers and other pension providers, and explored my options with the government support service Pension Wise, I decided to consult some financial advisers to discuss what I should do next. But how should I go about finding one?
I talk to financial advisers regularly for comment, ideas for articles and general discussion, but I wanted to approach this task as a layman would and did not want to use anyone I dealt with professionally. My friends and family could not help with referrals, so I did my own research.
I wanted to shop around to see which adviser best suited me, so I decided on three different avenues: one of the big national firms - I chose Hargreaves Lansdown; a pension specialist - I went for Independent Pension Specialists; and local firms.
THE RIGHT FINANCIAL ADVISER
I searched for the latter through two websites: unbiased.co.uk, which was mentioned in the literature sent by my pension provider; and vouchedfor.co.uk, found through a Google search.
Unbiased produced a long list of advisers, even after I had narrowed down the search, and I ended up selecting one - FPC Consulting, based in Bromsgrove - based simply on its website. With Vouchedfor, I had to enter my details and an adviser - JPA Financial Services - then contacted me.
All four firms offered a free initial session - a crucial consideration for anyone wishing to shop around. Before the various meetings, I had given some thought to what I wanted.
My pot is worth around £550,000; that sounds a lot but, as I plan to retire at 58, it will (I hope!) have to last me for many years.
I want an income of around £25,000 a year. I know that pension rules allow me to take a quarter of the pot tax free and, although I do not need that money, I had wondered whether it would be worth taking that and using it to fund the first five years or so of retirement, leaving the rest of the pot invested, and drawing down on the pension thereafter.
More importantly, I wanted investment advice - although I have been writing about the subject for more than 30 years, I am not good at monitoring my own investments, so I am debating the level of involvement I want in running my own pension.
The main aims of consulting an adviser were, therefore, first, to discuss the most effective way of drawing my pension, including whether and how to use the tax-free lump sum; secondly, to think about how best to invest it; and thirdly, to see how much all this would cost me.
My four advisers all had different approaches. My contact with Independent Pension Specialists was by phone, as their office in Kent is too far from me and they offered a freephone number and call-back service.
I had an informative discussion with one of their advisers, who took basic information from me and discussed the relative merits of buying an annuity - certainty of income but very poor value at the moment - and drawdown, which would give me greater control but leave the risk that the money would run out.
He outlined three options for my lump sum: take it all at once, withdraw £2,000 a month, tax-free, until the tax-free amount runs out; or make monthly withdrawals, a quarter of which would be tax-free.
The adviser told me I could have a free telephone advice session, in preparation for which he sent me some papers to complete outlining my pension pots and basic financial situation.
These included mandates authorising him to contact my pension providers, which I assumed he would not use until after the advice phonecall. I obviously had not made it clear I was shopping around, however, as IPS contacted the providers before the phonecall.
That is not too serious - a new adviser can simply override these instructions - but it would have been better left until later.
For me, it simply underlined the drawbacks of trying to do this exercise on the phone: the adviser himself agreed that a face-to-face meeting would be better, and I have to agree.
My next appointment was with an adviser from Hargreaves Lansdown, who emailed forms to complete outlining my financial position and pension assets; these then formed the basis for discussion.
He quickly established that my background made me pretty knowledgeable, so our conversation concentrated mainly on how much involvement I wanted with my investment portfolio and what level of risk I was looking for.
He drew a variety of charts and diagrams illustrating the risk/reward balance, and outlined the various levels of support available with investment decisions from the firm.
He was the only one to talk specifically about the kind of returns I could expect from the fund, and discussed the concept of natural yield - the income you could expect a portfolio to generate - and how closely this would match the annual income I needed.
He was extremely knowledgeable and our conversation spanned everything from the inheritance tax implications of my pension options to the balance of bonds and equities that should be in the portfolio and the services Hargreaves Lansdown offer.
The meeting with JPA was completely different: the adviser gave me some information about the firm and his own background and a very brief introduction to its services, but asked very little about me, my requirements, or my financial situation. The meeting was brief and, to my mind, not at all helpful.
The second local firm, FPC Consulting, was at the other extreme. We spent most of the 90-minute session completing fact-find forms about my own and my husband's health and wealth and my attitude to risk.
The adviser explained the different platforms the company uses and how they would be selected, and covered other areas such as whether I had a will, power of attorney and some back-of-the-envelope calculations about inheritance tax liability.
She also went through the ways in which I could use a tax-free lump sum and the tax implications of my various options.
FPC are not investment specialists: they contract out things like asset allocation and investment decisions to external experts, so it wasn't really what I was looking for. I would, however, have been happy to use FPC if I was looking for broader financial advice.
I was impressed by the investment-led approach from Hargreaves Lansdown. I ruled out IPS because I decided I did not want to use the telephone and JPA because I wasn't impressed by the initial meeting.
In fact, however, I have decided not to use any of them for one key reason: cost.
THE £16,500 QUESTION
All of the advisers I consulted charged fees based on a percentage of my pension portfolio. The most expensive of the advisers I consulted, JPA, would have levied 3 per cent on the full amount, equal to £16,500 - or more than two-thirds of a year's income.
Based on a generous hourly rate of £200, that was equal to 82.5 hours - more than two weeks' solid work, which I did not feel was required. IPS charged 3 per cent on the first £250,000, falling to 1.5 per cent over that - a total of £12,000, or half a year's income.
FPC's standard terms are 3 per cent of the fund value, but the adviser acknowledged that the work involved in administering a large portfolio was not proportionately greater than that for a small one, so quoted a £5,000 fee.
Hargreaves Lansdown was by far the cheapest and most flexible, quoting a range starting at 0.75 per cent for simply setting up a vehicle, tiered up to around 2.5 per cent depending on how much help and advice I needed in fund selection and ongoing management.
Ongoing fees also varied: IPS's was 1 per cent a year and JPA's 0.5 to 1 per cent, depending on the level of service I needed; FPC's annual 0.5 per cent financial advice fee could be reduced to 0.4 per cent because of the size of my portfolio; Hargreaves' would depend on what level of service I chose.
On top of that could be platform fees and the costs of the funds my pension was invested in; in fact it was pretty hard to get a handle on exactly what the charges would be before I actually signed up to use any of the advisory services.
The scale of the fees led me to start looking at how much platforms cost. Alliance Trust, where I already hold my Isa, has no set-up fees; Standard Life, which holds the smallest of my three pensions, is the same - although there will clearly be costs to setting up and running an investment portfolio.
I have, therefore, decided that the next phase of my research will be to consider going to platforms directly - Hargreaves will be included as one of my options - and to look at all the costs and options available. This will be covered in my next article.
TOP TIPS FOR CONSULTING AN ADVISER
- Shop around
- Seek out recommendations
- Use the free initial consultation
- Be as clear as possible about what you want - ongoing advice, one-off help, financial planning or investment ideas
- Ensure you get details of costs - both the advisers' own and those levied on whatever platform or investments they recommend
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