Help- higher tax payer looking for a pension!

misterjoe

Hi. Can anyone help me. I've been advised to take a pension from my accountant as I'm a higher tax payer. I agree with her too, so now it's a case of finding a good one. I'm 42 and was looking into applying via Cavendish online to save the expense of an IFA. But which are good performers? I think Scotttish widows and scottish equitable are both pretty good, but How can I tell? Any advice would be much appreciated.

dunstonh

I'm 42 and was looking into applying via Cavendish online to save the expense of an IFA.

Probably not a lot in at 42 between a commission free stakeholder and a factory gate priced personal pension from an IFA.

But which are good performers?

That is what you pay the IFA for

I think Scotttish widows and scottish equitable are both pretty good, but How can I tell?

You decide how you want to build your investment spread and research the funds offered by the various providers to see which one meets your needs and gives the investments you want. With IFA software thats a couple of hours work. Without it thats probably around 8 hours with a spreadsheet.

Or you can go with a random punt and hope for the best.

misterjoe

Hi Dunstonh.
Actually I'm happy to pay for the IFA if its going to be a couple of hours work. I have an initial free consultation lined up and then if I proceed further want to pay on a fixed hourly rate rather than a commission. I was also looking at private pension rather than a stakeholder. Does this sound like a good approach? I want something pretty safe!

misterjoe

A random punt is what I'm trying to steer clear of!

dunstonh

First thing to get the hang off is to think of the pension and investments as two different things. The pension is just a container for the investments. It doesnt give investment returns itself. The investments within the pension so that. Many modern pensions actually allow the same investment funds to be available to each other so in theory the only difference will be the charges.

A stakeholder is a simple mono charged pension (annual managment charge only). It isnt necessarily the cheapest and for those with more than 20 years to go until retirement then it certainly isnt. The idea of the stakeholder was to bring charges down and make the product more simple so people would buy more. It succeeded on the charges front but failed miserably on the people buying more front. Also, personal pensions moved on and modern versions can beat stakeholders in every way.

For example, you get mono charged personal pensions that offer stakeholder funds in them at stakeholder charges as well as hundreds of other externally managed funds as well. You also get multi-charge pensions which get the cost of advice/set up charge out the way at the start but then have much lower annual management charges. More expensive in the short term but cheaper in the long run. Typically you need at least 20 years for that to work in your favour. 30 years and an IFA can take a £1500 charge on a £100pm contribution and beat a nil commission mono charge pension. Which brings us on to the next thing. Look at charges. Dont look at commission. You pay product charges. The provider pays commission. A product with a commision of £1000 can have higher charges than a product wtih a commission of £2000.

You mentioned if you went with an IFA it would be fee. Thats good. However, with pensions you can take advantage of the hybrid fee where you agree a fee but get it taken out of the pension. The advantage there is that you get tax relief on the fee. In your case a £1000 fee costs you £600. If you wrote a cheque for the fee, it would be £1000. Hybrid fee uses the commission system to pay the fee to the adviser but you benefit from the tax relief.

misterjoe

Thanks for this Dunstonh. I am extremely cynical (and wary), hich is one reason its taken so long to start one! Should I have complete faith in the IFA, or are they pushing products for their own benefit? In your opinion would I be better going straight through Cavendish online for a personal pension a say Scottish widows or scottish equity? Be honest now

dunstonh

Should I have complete faith in the IFA, or are they pushing products for their own benefit?

The term IFA covers a wide range of skills, knowledge and specialists. If you went to an IFA that spends 90% of their time on mortgages then whilst you are highly unlikely to be mis-sold their knowledge on the best pensions wouldnt be as strong as one that specialises in pensions and investments.

Everyone goes to work for their own benefit. No occupation is exempt from that. Every industry has bad apples but IFAs do only account for 4% of complaints at the FOS despite handling the majority of transactions.

n your opinion would I be better going straight through Cavendish online for a personal pension a say Scottish widows or scottish equity? Be honest now

Depends on how you measure better. You are 42 and you have no retirement provision. Your state retirement age is 66. You say you have an accountant. If that means you are self employed then you dont get the full state pensions.

So, the questions you need to ask yourself to decide if you need an IFA or not are (not in order):
1 - who is the best provider?
2 - how should the investment spread be built (and do i understand the investments to make those decisions)?
3 - how much should I pay to get how much I want in retirement?
4 - at what point is it better to use S&S ISAs instead of pensions?
5 - Is a stakeholder, mono charged PPP, multi-charge PPP, fund supermarket pension or SIPP best?

Cavendish is cheap if you want a stakeholder. However, they only offer a limited panel of pensions. At your age a multi-charge PPP would be cheaper than a stakeholder or mono charged PPP on a like for like basis. I dont think you have quite enough years for an IFA to be cheaper than a nil commission mono charged pension as you really need to be in your 30s for that to be the case. If cost if your primary driver then you should DIY.