any tips for choosing a pension provider? discount broker vs IFA etc.

zar · 17 July 2008 at 1:30PM

Hi all,

I need to choose a pension. I'm a DYOR kind of a girl, but as part of that I thought it was worth checking if anyone had any immediate pointers or tips for me.

Situation - I'm 27, just started my first job 2 months ago. Prior to that I was a student (undergrad, postgrad etc.) so I haven't previously paid into any pensions, or indeed paid national insurance contributions. Luckily it seems that won't matter so much now the number of years is 30 for the state pension.

From next month my employer is willing to contribute to a pension scheme for me. It has to be a pension, so I can't use an ISA. They don't have a particular one set up, so all I need to do is set one up and then they will send their 9% contribution and my 4% contribution directly to the company. This will be £189 a month if my back of the envelope calculations are correct.

I've worked at an IFA in the past, so I could go to him and ask him to do all the legwork for me, or to another IFA. However, I usually do things like this myself so I was planning to use something like Cavendish Online or going direct to a provider to claw back commission, having seen first hand how much money this is worth. However, from my reading so far on here it seems to be that because of the way the financial services sector works it might be cheaper to use an IFA after all, is that correct?

Also I think I saw on one thread DunstonH said the best thing to do is to decide where I want to invest and how I want to spread my risk, and then work out which to use out of stakeholder and personal pension. This sounds sensible, if a bit daunting. I don't really want to ask an IFA to decide for me as I know that they'll just use my risk attitude/ length of time (long!) and then pick whatever funds they have recently been on a jolly with the sales rep of/usually use for that risk profile (OK I might be being overly cynical but it alarmed me that I had to explain to an IFA how to calculate inflation). I guess I need to get some money magazines and read up on a few funds. I can narrow down my criteria a bit by picking ones which fit in with my ethics and I'd like to invest in alternative energy technology, so I guess that will help me choose.

I could probably choose the fund myself and then use the IFA I know as a no-advice intermediary and come to an arrangement about commission. Is that likely to be a better way of doing it than using cavendish or similar, or does it depend totally on the provider? If the same funds are available through skandia, scottish life etc. etc. then how do I choose which to use - I presume I can find out about charges directly, but what about customer service?

Being the age I am, it is possible that I will dip in and out of employment due to childcare etc so my payments may fluctuate a bit. Will personal pensions be as flexible as stakeholders in this regard?

Thanks for contributing to this board already, I have learnt a lot from reading the other threads.

dunstonh · 17 July 2008 at 1:56PM

I'm 27

Thats important as at that age the modern multi charge pensions can significantly undercut the mono charge pensions that are available through discount brokers.

I was planning to use something like Cavendish Online or going direct to a provider

direct to provider wont save you any money. Most direct to provider options just keep the money they would have paid the adviser for themselves. Cavendish is cheap but will only offer a limited panel and they are all mono charged pensions which are not the cheapest versions for your age group.

Also I think I saw on one thread DunstonH said the best thing to do is to decide where I want to invest and how I want to spread my risk, and then work out which to use out of stakeholder and personal pension.

Correct.

I don't really want to ask an IFA to decide for me as I know that they'll just use my risk attitude/ length of time (long!) and then pick whatever funds they have recently been on a jolly with the sales rep of/usually use for that risk profile (OK I might be being overly cynical but it alarmed me that I had to explain to an IFA how to calculate inflation).

Good God where did you work? That sounds like the sort of thing that happend 10-15 years ago. Things have moved on a lot since then. Although of course there are still going to be firms that are sales focused rather than advice focused. That is not the sort of thing you would expect from a fee based IFA or NMA IFA. More consistent with a transactional IFA.

I could probably choose the fund myself and then use the IFA I know as a no-advice intermediary and come to an arrangement about commission.

Yes, that option still exists. Although remember that single fund investing is usually bad investing.

Is that likely to be a better way of doing it than using cavendish or similar, or does it depend totally on the provider?

It is a better way but remember execution only means you have to tell the IFA what product you want. If you dont know the products which are the cheapest then its going to be harder for you.

If the same funds are available through skandia, scottish life etc. etc. then how do I choose which to use - I presume I can find out about charges directly, but what about customer service?

Most of them offer the same mainstream funds but its the range available and the charges they offer them at that vary. Service isnt really an issue most of the time. Whilst legacy contracts tend to throw up bad service fairly often, the new business sides of providers tends to be a lot better nowadays. Some are better than others but even with the bad ones you will find the majority of people never suffer any service issue.

Being the age I am, it is possible that I will dip in and out of employment due to childcare etc so my payments may fluctuate a bit. Will personal pensions be as flexible as stakeholders in this regard?

Modern ones are. In many cases, personal pensions are identical to stakeholder with the exception of more funds being available.

EdInvestor · 17 July 2008 at 3:28PM

Here's a good site for selection of quality fundsA:

https://www.citywire.co.uk/Funds/home.aspx

Ignore all but top ten in each category and look at performance over 1,3,5 and 10 years.

If you want best quality funds and online accessibility plus good customer service a SIPP via a discount broker might be worth looking into.

dunstonh · 17 July 2008 at 3:35PM

Ignore all but top ten in each category and look at performance over 1,3,5 and 10 years.

Doing it that way could allow funds that have had a short good run to be selected. There is no indication of consistency in there unless you look at discrete performance and not cumulative.

EdInvestor · 17 July 2008 at 3:52PM

There are usually only a few funds with a 10 year listing, all the rest that existed 10 years ago have been closed because they were lemons.Only the best survive.

zar · 17 July 2008 at 4:37PM

Thank you both very much for the quick replies - much food for thought. :T I can see where my weekend is going! If I did go to an IFA I might go to a fee-based one. Another IFA friend charges a fee that comes out of the commission, with the balance being paid either way. Unfortunately she only takes on clients with hundreds of thousands to play around with!

I'm a bit wary of using past performance - even over ten years - as a guide, as I'm a statistician by training and hence don't like extrapolating. I'd have to work out some model of how many funds survive by chance and how many because they are well run.

But its another piece of information I will certainly consider. :beer:

dunstonh · 17 July 2008 at 4:42PM

Another IFA friend charges a fee that comes out of the commission, with the balance being paid either way. Unfortunately she only takes on clients with hundreds of thousands to play around with!

Thats the best way of doing it with a pension as you get tax relief on the fee.

MikeJones_2 · 17 July 2008 at 5:00PM

Hi zar,

Take care about receiving commission rebate as cash.

If HMRC finds out that the IFA is rebating commission from a pension contract, the IFA could end up in trouble.

In the strictest interpretation of existing HMRC rules it could be deemed an unauthorised payment.

I'm amazed at how often this practise appears with pensions, however well-intentioned it may be.

I understand that some IFAs would keep the excess commission (if any existed) in a separate client account and offset it against future fees.

It's great to see someone your age taking her retirement planning seriously.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

dunstonh · 17 July 2008 at 7:08PM

Rebating within the pension to enhance product terms is allowed (i.e. reducing annual management charge or initial charge). However, rebating the commission in the form of a cheque back to the client or making the allocation go above 100% would breach HMRC rules.

I'm not sure of any provider that would allow a rebate to increase the allocation above 100%. Reducing the AMC is the default action (apart from SIPPs where the initial charge on the investments are reduced).

adrian_bond · 22 September 2008 at 1:38PM

Hi all,

im in a similar position to ZAR; im 27, without any previous pension history other than the state pension ((university for 4 years) i already have 7 qualifying years out of 30)) and are looking to start a private one with about £200 a month payments or so. i would like to ask your guys advice on what you think i should do next. here are the detials of what im looking at;

im 27

i earn around £22300 per annum (before tax)

i have no private pension

i have a car loan outstanding of £2100 approx. (12.2% APR)

i have savings of £2100 approx. (no brainer with what to do here then!)

i have no lump sums to invest

im basically financially savvy, but have no idea what a good pension setup charge should be, who to go to, and i will need advise as im new to the whole pension product scenario.

i have been offered my companies pension scheme (they dont contribute) which i believe is a stakeholder (cant confirm as our finacial controller cant find a copy (been waiting for 4 weeks and counting!!!)) and is pants so ive been told.

am looking to save around £200 a month or so until i retire at 65 - 67 depending upon health, boredom, job, missus etc.

ive been to see a finacial planner who works for norwich and peterbourorgh building society in norwich (Danny Cashley DMC00042 - seems a very nice chap) to asses my situation who says that i can afford to pay what im suggesting. I went to npbs because i already bank with them and can start of my research with them before you ask. regarding my age i have opted to probably go for a quite high risk options as i beleive at my age i can swallow any losses without sweating too much, and can gain lots in the long run at this stage.

at the end of my initial free meeting i was given a copy of "key facts" which is nessesary to conform with FSA rules i think. it makes interesting reading. one area which im finding daunting is the costs;

there is a table included in the key facts which states;

"commision if you invest monthly"

personal and stakeholder pensions;-

25 year term - "our maximum costs" - 85% of the first 12 months payments
- "market average costs" - 34.2% of the first 12 months payments.

this seems very strange to be 2.5 times the normal cost!

then; "example based on £100 per month = £1020.00 spread evenly over the first 12 months.

therefore do the charges slowly decline after the first 12 months or will i be paying 85% of my money into someones back pocket for the next 40 years?

the guys then outlined his costs.

if i choose the Fee based route;

£1000 to do a full report on me and the current options and stuff.
£500 per session everytime i want to get an update.

if i choose the commision based route (which he clearly preffered);

this is unclear as i wont know this until i confirm i want to meet with him again and go through the costs. he said the normal gumf about rebated commision and no fees so i can see him whenever i want and stuff but im still sceptical as with any commision based product you pay more overall in the long-run.

i asked the question "do you offer products form the whole of the market" to which he replied yes; he isnt tied to any products, services, or companies so he can offer the best buy for my situation. this then begs the question why do you then work for norwich and peterborough? hmmm.

my dilemma is how much is a typical cost to setup a pension, should i go with this guy or look for an IFA, where can i look to get an acurate and up-to-date comparison of pensions and thier value to me. if anyone has any opions or help then it would be greatly appreciated as i really dont want to make a silly mistake especially when starting out as it could cost me dearly later down the line.

plus, if there are any resources that you guys know of, or any way i can really get up to speed using then please let me know.

thanks and best regards.

Adrian

EdInvestor · 22 September 2008 at 4:20PM

Hello Adrian

Since you are a basic rate taxpayer and have no company contribution, I suggest you avoid pensions for the moment and instead set up a Self select ISA at a discount broker such as https://www.h-l.co.uk (the cheapest) and start learning how to invest in quality funds.

This offers you the same options as a pension but your money is not locked in until you are aged 55. Growth is taxed free and there is no tax on income or capital taken out.There are no restrictions on withdrawing the money.The saved money can however be put into a pension wrapper later if desirable (eg if you are paying HRT and can get a 40% cont from tax relief instead a BRT 20% contribution.

Better to keep options open at this time of financial confusion for someone who may want to pay off debt, buy a home, etc. Leave the pension until later when you have some extra help from your employer or the taxman..

Basically young people

any tips for choosing a pension provider? discount broker vs IFA etc.

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free