start a pension

diveleader

Right, Update,
We have been to see two IFA's
I am awaiting info from the second, but the first has recommended a plan with Scottish Life.
The IFA has done his risk analysis and will report back to us with his choice of funds.

Chargewise, I asked for a fee based setup and he has proposed the following:-

To setup two plans, one for myself and one for my wife.
Monthly payments of £1500 to each plan made from my company.
Age 41 and 40 with a proposed retirement age of 55.

Initial fee of £1000.00 per plan
0.25% of the fund value (or it may be 0.25% of the annual payments - not sure, will find out) to perform an annual review of plan.

The Scottish Life plan as an AMC of 1% initial, which seems to reduce as the fund size increases.

What do you think of these charges - they look alright to me.

Many thanks

diveleader

Anyone? any thoughts?

diveleader

Bump, one last time!

dunstonh

Scottish Life is a provider I have used in the past when they were one of the earlier providers that allowed fee based remuneration within the plan. If you have terms of over 20 years to go to retirement (approx) then the fee option can make it cheaper than a stakeholder (assuming internal funds). Larger fund values get larger discounts. Good admin from them as well so nothing wrong with them there. I havent used them much in recent times but I cannot see anything wrong with what you have posted.

However, the amc is 1% (on commission terms) on internal funds. External funds are more. However, the fee basis will bring that back down again.

diveleader

Just an update, I have been to see another IFA who has recommended Aegon Scottish Equitable FPP establishment charge option, Clean terms.

His fees would be £600 per pension (ie £1200) plus an annual review of 0.5% of each plans value with a minimum charge of £500 total.

Aegon AMC is 1 %
Any comments from the collective out there?

Lunar_Eclipse

Is there any reason why you wouldn't set up these pensions directly with the pension providers you have mentioned instead of going through an intermediary? Or is it not possible/more costly to do so?

dunstonh

Lunar_Eclipse wrote: »

Is there any reason why you wouldn't set up these pensions directly with the pension providers you have mentioned instead of going through an intermediary? Or is it not possible/more costly to do so?

There are two issues there

1 - many providers do not transact directly. If they do they have to have further layers of staff, administration and FSA authorisation. All extra costs.
2 - For those that do transact directly, they will usually keep the commission that they would have paid the intermediary. So, if you get a discount from the intermediary then its cheaper.

Take one of the worst stakeholders out there, the Virgin Stakeholder. They charge the normal 1% amc and have only three funds. So, that makes them more expensive than stakeholders from IFAs taking maximum commission as well as the Virgin product being very poor quality in fund choice. (e.g. L&G starts at 0.9% and gets discounts based on fund value. NU gives discounts as well, as does Scottish Life, Clerical Medical etc etc. 3 funds is not enough to build any decent investment and the main fund used on the Virgin stakeholder is medium/high risk. Most UK consumers are cautious to medium so the Virgin pension wouldnt be suitable for the typical UK consumer anyway. The other providers have 20-30 funds typically on a stakeholder (100-1000 on a PPP).

Just an update, I have been to see another IFA who has recommended Aegon Scottish Equitable FPP establishment charge option, Clean terms.

His fees would be £600 per pension (ie £1200) plus an annual review of 0.5% of each plans value with a minimum charge of £500 total.

Aegon AMC is 1 %
Any comments from the collective out there?

The AMC default is 1%. However, the FPP is not a mono charged plan. It is multi charge so the amc alone is not enough to go by. Look at the reduction in yield on the later pages. It will say something like "for example, the impact of charges will reduce the return from 7% to 5.9%". It is that 5.9% (or whatever it is) that you measure the charges by.

5.9% would be a 1% stakeholder 5.2-5.5% would be your typical personal pension utilising external funds or SIPP. Anything less than 5% and its not very cost effective and there really isnt a need to pay that much nowadays.

The cheapest options, although not necessarily the best investments, would be in the 6% range. You generally cannot get better than 6.6% utlising funds.

Lunar_Eclipse

dunstonh wrote: »

There are two issues there

I see, thanks. The reason I asked is that from a non-IFA point of view, there are two potential issues in using an intermediary:

1) For IFA's that receive kick-back commission from companies, one could never ensure they receive objective advice. I know there are regulatory bodies/professional standards in place to minimise this and am aware that the good guys probably make up the majority, but in reality, it could take years for bad practice to stop someone offering poor advice.

2) If IFA's don't receive any financial compensation, firstly how would a customer know this was the case and secondly, it really puts pressure on the quality of the advice given, above and beyond common financial sense. But I would personally prefer this scenario.

Or should I not be so sceptical?

On a tangent, I am trying to find SIPP providers that allow (commercial) property to be held in the pension wrapper, but am drawing a blank. Any ideas? Or do I need an IFA?!

dunstonh

1) For IFA's that receive kick-back commission from companies, one could never ensure they receive objective advice. I know there are regulatory bodies/professional standards in place to minimise this and am aware that the good guys probably make up the majority, but in reality, it could take years for bad practice to stop someone offering poor advice.

If you are paranoid about it then go with fee basis.

2) If IFA's don't receive any financial compensation, firstly how would a customer know this was the case and secondly, it really puts pressure on the quality of the advice given, above and beyond common financial sense. But I would personally prefer this scenario.

Again go with fee basis if you are paranoid about it. Remember that illustrations do show the gross remuneration and will say nil if nil commission is paid.

It is worth noting that IFAs do business all the time that doesnt earn any money. IFAs are the largest introducers to NS&I despite them not paying a penny. NS&I even has a webpage for IFAs. Cash ISAs dont pay anythig either but we frequently use those.

There are always going to be the odd bad apples that are greedy but the choice of how an IFA gets remunerated is with you. The three main ways are:

1 - commission
2 - fee
3 - hybrid fee (where you agree a fee but use the commission to pay that fee with any surplus being rebated or used to improve product terms). This is often the best option with pensions as you can effectively get tax relief on the fee with an explicit charged contract.

Also, if you take Martin's pension article and use a personal pension with an IFA using the figures in the example and the IFA taking £2500 commission, the IFA can beat the nil commission stakeholders despite the IFA being paid £2500. (I use the £2500 purely as an example - hopefully you would pay less than that).

Remember its not the commision or remuneration to the IFA that matters. Its what you the individual pays. You dont go shopping for a washing machine on the basis of which company makes the least profit from it. You look at what you pay. Same should apply to financial services.

A good example of why you shouldnt focus on the commission first is that you could have two IFAs recommeding the same product. One takes 4% commission and one takes 6% commission. If you look at commission then you would go with the 4% one. However, in this case the 6% IFA gets better terms than the 4% IFA which means they get paid 7% and they have rebated 1% into your plan whilst taking 6%. So the actual charges to you are lower despite that IFA being paid more. IFAs are just like retailers in that they can individually negotiate terms (or collectively with networks) and that will often result in higher commission than default or lower charges or improved allocations etc.

Or should I not be so sceptical?

Be aware rather than be sceptical.

On a tangent, I am trying to find SIPP providers that allow (commercial) property to be held in the pension wrapper, but am drawing a blank. Any ideas? Or do I need an IFA?!

There are plenty that do allow it but its a niche area (over 90% of money going into SIPPs post A day uses investment funds). You dont have to use an IFA but if you are having problems then an IFA would resolve that. Although it would have to be fee basis (if you do, agree the fee and get it taken from the pension so you get tax relief on the fee). I would suggest a specialist in that field as well as its not an everyday transaction.

Lunar_Eclipse

dunstonh wrote: »

If you are paranoid about it then go with fee basis.

Top post.

Thank you for taking the time to reply in such an informative manner and without being at all defensive.