Should I commute my pension?

I have yet to see his written report but one thing I can already see is they want to charge me a fortune for doing this.

Many investment bonds do not have the commission explicitly charged so you are incorrect.

If I commuted the maximum I could get £163,000 tax free and then a pension of circa £32,500 a year.

If I take the full pension I would get a pension of £43,300 per year which is index linked.

That explains the advice. Lump sum taken keeps you a basic rate taxpayer and the investment bond can be used for income/growth/both and benefit from top slicing relief to keep you a basic rate taxpayer.

However, I would have to spend time managing the money. I hate paying commission on anything.

Do you live in a straw hut in the middle of a field? One assumes you buy food? There you pay a charges. One assumes you have bank accounts. There you have charges (even on savings accounts but they are implicit). Everything you ever buy has commission/charges.

The advice, based on the limited info you have posted, seems fair and valid and will save you a lot of tax. The charges are going to be far lower than the tax saved. However, if you prefer to pay higher tax and not benefit from it because you dont want to pay a professional for doing their job, then of course that is your choice.

It's not that difficult to invest directly, there are plenty of tools available on the web.Start with a discount broker such as www.h-l.co.uk which will rebate charges on funds (unlike what usually happens with the bond).

An IFA can earn commission on a bond and still have lower charges than HL. The FSA published averages on commissions would improve that even further.

I would suggest you put 60k in a selection of "equity income" funds ( a lower risk type of equity fund which invests in dividend paying household name big company type shares) and the other 20k in commercial property funds ( the ones that own buildings, not shares).

And what do you know about the OPs risk profile that the rest of us do not? I can see no reference to attitude to investment risk anywhere in his post.

Quite easy really.:) Not IMHO necessary to pay large sums of money to someone to do it for you and waste your profits on unnecessary taxes and fees.

How naive you are. HL are getting the commission on the investment in this case. The annual trail commission they get is probably higher than the commission that is payable to the IFA on the bond.

Plus, the bond can have lower charges than the investments with HL.

So, the reverse arguement can be "Not IMHO necessary to pay large sums of money to someone who is not giving advice and requiring you to do it yourself and waste your profits on unnecessary taxes and fees which would not be present with the IFA doing it".

Reading the paperwork he left me it states the charges could be a maximum of 6.6% of the sum invested up front and 0.5% of the value of the bond each year. Hence I felt uncomfortable at a potential £10758 up front fee. I accept it may be lower when I see the proposal.

You are not reading it correctly. Remember commission and charges are not the same thing.

Also, there are not many providers out there that pay 6.6% and 0.5% p.a. I can think of very many on maximum commission basis that will go to 5% plus 0.5%. However, you have to look at that commission against other advisers. Whilst I work on NMA basis which is 1% plus 0.5% you have to remember that 1.8% plus 0.5% is the typical average (published by the FSA and updated every 6 months). So, 6.6% plus 0.5% suggests your adviser is taking above the typical maximum.

As I said above, commission is not a fee. It is recouped through the annual management charges. If a reduced commission is taken, then the annual management charges are lower.

However, there is another issue to remember. Different IFAs get different commissions without any impact on the charges to the client. For example. Norwich Union default commission on their bond is 2.5% plus 0.5% p.a. I can get it at 5% plus 0.5% p.a. I know another IFA that gets it at 4.5% plus 0.5% p.a.

So, you may have two IFAs, one could be getting 5% and discounting 2% and taking 3% and another getting 2.5% and not discounting. The second IFA is getting paid a lower commission but the terms of the contract will be worse than the one taking the higher commission.

If you wanted a washing machine would you look at the price you have to pay or would you look at the profit margin of the retailer?

Do not mix up commission and charges. Look only at charges as they are the only thing you pay.

Just to make it clearer my attitude to risk is very low, my wife and I would not like to see our investments fall in value and would be content to beat the performance of high street banks if thats possible.

You can forget any investments then. The problem you are going to have is that the interest will be lower over the long run and your capital will be eroded by inflation (assuming you take the interest as income). £160k in 10 years would be worth around £112k due to inflation.

You would be better being more realistic with your expectations. That doesnt mean jumping in at the deep end and going gung ho. Just taking appropriate levels of risk.

Low risk investments also typically favour investment bonds rather than unit trusts. Mainly due to lower charges and no CGT not being payable on income within bonds making the differences betwen unit trust and income much closer.

Here we go again.

The FSA publishes useful tables on the effect of charges on your returns from various providers' products.Investment bond charges tend to be right up there, especially upfront ones:

Investment bonds are best priced for 100k plus. The FSA tables dont price at 100k. Plus they are based on 100% commission taken. We know from FSA published figures that on average IFAs take 54% of the available commission.

But you'll still pay 20% tax on gains,

Wrong. (or at minimum partially correct on some funds but totally wrong on others).

be subject to exit penalties for early withdrawal

If you choose one that has an exit penalty, then that is correct. You don't have to choose one that does. Most people do though because the provider will pay an upfront allocation and it is common sense to have a step down penalty on early withdrawals above the allowance amount. i.e. £160k could get 108% initial allocation on it. If you were a provider would you give 108% allocation with no tie in period?

and have your so-called "income" actually paid out of your capital

Again, only partially correct because you can take either natural income or a fixed regular withdrawal. You can do the same on ISAs, unit trusts etc. The very same investments Ed has recommended earlier in this thread. So why does Ed highlight that as a problem unique to investment bonds when her own investment option offers the same withdrawal options?

Even if you take fixed regular withdrawal, it isn't an issue. Its no different to have an account where you go to the cashpoint and draw out a fixed amount each month. You are drawing the capital there but it is replenished with interest.

which can be very dangerous when markets are going downhill

Not if you are not fully invested in those areas. What about when they are going up?

You were telling the OP to invest in unit trusts. So don't they invest in exactly identical areas?

.[Do you need an advisor and a special product so as to pay yourself "tax free" money from your capital? Err,perhaps not?)

Do you need someone on a forum that has repeatedly posted inaccurate and misleading data and information on the investment bonds on multiple threads including telling someone not to take a bond because an IFA will earn from it and suggesting unit trusts with HL instead because an IFA wont earn from those. This is despite HL being IFAs themselves and in that particular case the poster facing an IHT bill of upto £200k if she followed Eds advice and not that of the adviser.

As a new poster, you wont know this but Ed is very anti IFA. Even when an IFA presents the best option, she will tell you not to do it.

Ed is presenting an alternative to you which could be best (we don't know your circumstances enough to judge) but I doubt it. The investment bond could easily be the best option. The lower charges give it a start. The reduction in maintenance (i.e not having to sell and rebuy units each year and incur costs in doing so and then declaring it on your tax return), top slicing relief and ability to switch funds as much as you like without generating a CGT liability are all positives which may make it the best option.

Some better advice from dunstonh on this issue over on this thread

This person is clearly not suited to an investment bond. She doesn't fit the criteria.

It's really very apparent - we have thread after thread on it - that the minute anyone walks into an advisor's office with a lump sum to invest, s/he is instantly offered an investment bond. Be warned.

That thread you linked has the person buying an investment bond based on a mailshot. Not advice. What is really very apparent is - we have thread after thread on it -that the minute anyone posts on this forum about investment bonds you give them duff advice based on misinformation and downright lies because you don't like advisers. Be warned.

A thread where Ed gives her useful misinformation.
http://forums.moneysavingexpert.com/showthread.html?t=522452
it gets interesting from post #9 but the earlier bits may be useful to you as well.