Pension MoneySaving: Buy a different way to boost returns Article Discussion Area

dunstonh

Not the case with drawdown, where IFAs tend to charge high starting commissions on the lump sum transfer

Rubbish.

Low cost SIPPs are much cheaper and the paperwork is easy to organise

Rubbish

you don;t need advice for this

Correct.

A standard pension will often not offer drawdown.Transfer at high cost will be required.

Rubbish.

jamesd

EdInvestor wrote: »

Not the case with drawdown, where IFAs tend to charge high starting commissions on the lump sum transfer.Low cost SIPPs are much cheaper and the paperwork is easy to organise, you don;t need advice for this.

Good of you to highlight some possible costs. Not so good that you didn't mention the big one: the annual management charge for the investments. Take one of the IFAs that provides a SIPP that you mentioned, Hargreaves Lansdown. They take what is generally 0.5% of the pension pot value in commission each year, no discounting at all. For a decent sized pension pot a competitive IFA is likely to be willing to share some of that, just as HL does for exactly the same investment if it was held in their ISA.

For drawdown HL charges 75 Pounds for the initial mandatory GAD calculation to work out how much income you're allowed to take and the same again every five years; ten Pounds every time you want to change how much money you take as income and 25 Pounds for any ad-hoc payments you take. That's cheaper than some other IFAs or pension providers but it's still money you don't have to pay if you buy an annuity.

For smaller pension pot values it can be cheaper to simply take an annuity now. Particularly if the Suzanne doesn't want to manage her investments in the pension.

EdInvestor wrote: »

A standard pension will often not offer drawdown.Transfer at high cost will be required.

Yes, it seems that transfers will be needed. One IFA, Hargreaves Lansdown, charges nothing for transfers and you can then do either an annuity purchase or drawdown, whichever you wish. Or a bit of each. Others may also charge similarly low amounts. It varies. So pick one that's offering a fair deal, not one that isn't.

It's all well and good for you to mention that some things can cost money or commission that could be refunded but it's not really good to assume that Suzanne isn't willing to shop around to get the best deal. That could be one of the places you mentioned or it could be a proper IFA (not a bank salesperson). Since it costs nothing to find out it's sensible to do that.

dunstonh

Just to balance it, I did a drawdown case a few weeks back and the reduction in yield due to charges was 0.9%. HL with the use of unit tursts will be around 1.7%. To assume an IFA is more expensive is the wrong assumption. I am sure Whiteflag would have similar reduction in yields. A fee based or hybrid fee adviser will usually be a lot cheaper and even if arranged on maximum commission, there are contracts out there which are cheaper than HLs. Like any retail business, you get cheap retailers and expensive ones. To make assumptions that one type of retailer is always the most expensive is flawed.

Russjo

Hi I wonder if anybody can help....my husband has a small pension fund that he hasn't paid into for years and years but apparently because he is contracted out of SERPS he needs to make a decision on whether or not he wants to contract back in to SERPS or leave it as it is. We know very little about pensions really. He has a contributory pension scheme at work but he wants to know what the consequences would be on his state pension and also company pension if he contracts back in to SERPS. Any ideas?

dunstonh

Russjo wrote: »

Hi I wonder if anybody can help....my husband has a small pension fund that he hasn't paid into for years and years but apparently because he is contracted out of SERPS he needs to make a decision on whether or not he wants to contract back in to SERPS or leave it as it is. We know very little about pensions really. He has a contributory pension scheme at work but he wants to know what the consequences would be on his state pension and also company pension if he contracts back in to SERPS. Any ideas?

Take a look at the contracting out thread at the top of the forum. Read it backwards (newer posts first).

a1b2c3

I am 40, and have a pension, which originally started as a company pension, and which I have maintained as a personal pension since I started working as a self employed contractor. I make regular monthly and annual lump sum payments, and I'm an HRT.
I have used the same IFA throughout the life of the pension. My pension is invested in a mix of different funds, and with the present economic situation, is currently worth less than the cash sum I have paid into it.
Over the years I have never really modified the fund mix of the pension. Usually I discuss the pension once a year with the IFA, who has never given me a strong steer to vary my investment one way or the other, and hand over a lump sum contribution.

I can see that it could be useful to get specialist advice closer to retirement age, to structure my pension to best advantage, but I'm questioning what I usefully get from using the IFA now, and considering simply making my own contributions and investment choices and saving the commission.

Is there any advantage to using an IFA in my situation? If so, how do I go about finding someone who actually has a proven track record, and is going to give me a worthwhile return on the commission I will have to pay?
Any advice gratefully received.

berrya1

Hi I really need some advise from people... and fast (My pension deadline is in a couple of days).

I apologise if this have been covered off in many areas but I need advise as to which option is best for me.

I am currently 30 years old with no previous pension earning around £17,500.

My company offers a choice of 2 pension plans. I have decided that initially I will contribute 4% of my salary with my company contributing 6%:

The 2 options are:

Final salary:

For this option the company sets how much contributions are required for 1% of your final pensionable salary. The last tax year it has been 16% (This figure is set each year).

Thus with my outlined investment above of 10% (4% + 6%) I would earn 0.63% (10%/16%) of my final salary for every year I am in the scheme.


Money Purchase:

This probably goes without saying but for this option I have the choice of investing my yearly 10% into various Equity Funds with Legal & General (Each with varous risks).



Now although I prefer the Final Salary option due to the lack of risk, I estimate somewhere between £20k & 30k (not including inflation). Which I know is not overly high compared to what I am currently on.

Would it also be more beneficial for me to undertake a Money Purchase option given that the "cost" to purchase 1% (currently 16%) may rise as I get older?

I could be wrong but in a crude sense is it more wise to opt for a Final Salary option when you are 40,50+. However, due to increasing lifespans is it more prudent to opt for a Money Purchase scheme at my age... I am totally confused???

Any help, no matter how small, would be much appreciated.

Thanks.

jamesd

a1b2c3, has your IFA been doing things like annual rebalancing to preserve your asset allocation (percentage split) and produce what studies suggest is an expected 1% a year higher return? What about investment advice? It's possible that you would do better with a different IFA. What are the fees like, both any from the IFA and the annual fund charges?

berrya1, one disadvantage of final salary schemes is that they are based on your final salary with that specific company. It seems that you don't expect that to increase much. It's also not advantageous if you expect to switch companies a lot. There's also the matter of having some tie to the financial future of the company when it comes to how much you'll get if it becomes bankrupt.

The money purchase schemes are not attached to the future health of the company and their payouts depend on how the investments that you select perform. That's good if you change companies a lot or if your investments do better than average. It's bad if you don't manage your investments well, are unfortunate with them or just want someone else to look after it all. You also keep all of the risk of increasing life expectancies instead of the company having that risk.

You're young enough that there does seem to be a fair chance that you'll do better with a money purchase pension, but with those higher risks that you end up accepting. Perhaps you also have the option of doing a split between the two so that you can provide some good basic income from the final salary scheme and also have the potential to do better from money purchase investments?

a1b2c3

jamesd - no, nothing like that. The IFA is not actively doing anything to manage my pension. I've made a point of saving a significant amount of my earnings into it, but have been lazy about making sure the money is being worked hard enough.
I am prepared to pay for expert advice on managing my pension if there is a worthwhile return. However, I don't know what a reasonable fee level is for an IFA to do this, and I don't know how to go about finding a reliable IFA with a proven record. The experience I have personally (and what I've seen from other people's experience) does not lead me to have a lot of confidence in IFAs, as a generalisation.

davidtgordon

I understand that if you are approaching retirement, as I am, and have spare cash there is a way of saving tax at both the lower or upper bands by putting cash away as a pension taking the tax rebate and then taking it all out of your pension fund when you retire as cash as the fund is too small to warrant a regular pension. In effect this boosts your the amount of cash saved by the pension rebate. Anyone know this.
Hope this is the correct place to post this.