FSA stakeholder pension decision tree booklet

clairehi

Hi all

I am seeing an IFA on Thurs to discuss DH's pension arrangements. DH will be there too but as he has to phone me every time he needs to work out a percentage Im not relying too much on his input here! In preparation I have been getting together the various policies including his current company scheme which is the Prudential Stakeholder Plan. By the way, the charges on this seem very low (0.55-0.65%) but there are only about 15 funds to choose from and I have no idea of how to assess whether they are any good. Thoughts anyone? If he opted out of the company scheme, they would give him the 8% employers contributions in cash. Is there anything to stop us taking this and his 5% and investing it via another personal or stakeholder pension elsewhere if we wanted?

Anyway, with the scheme guide, they have included this FSA guide which seems quite helpful to a beginner like me and contains a ready reckoner table showing estimated income at retirement for different starting ages/levels of contribution (assuming 7% growth - obviously not a guarantee). Presumably this is at todays prices, so how do I take account of inflation, is there an online calculator anywhere?

I have made a conservative estimate of our likely expenditure needs in retirement vs what we expect to get from my (TPS) scheme and state pensions, again at todays prices. I guess both the state and my TPS beenfits would be termed low risk as an investment (although there are other, political risks that these schemes may no longer exist in 25 years). As DH is not retiring for 25 years, my inclination would be to choose mainly highrisk funds for his stakeholder or PP initially to balance things out. Does this seem reasonable?

thanks to anyone who made it this far! wish me luck for Thursday.

EdInvestor

If he opted out of the company scheme, they would give him the 8% employers contributions in cash. Is there anything to stop us taking this and his 5% and investing it via another personal or stakeholder pension elsewhere if we wanted?

If this is so and he is a basic rate taxpayer, I would suggest he consider maxing out his annual investment ISA allowance (7k a year) rather than looking at pensions at this stage.

The rules have now changed so that the ISA is an annual "use it or lose it" allowance, whereas the tax relief on a pension can now be accessed right up to retirement for lump sums equivalent to your entire annual salary.

Thus assuming DH could be a higher rate taxpayer later on in his career, it would be much better to invest the money in the ISA for now, and then pick up the much better pension deal available for higher rate taxpayers later.

Investment options for the ISA are the same or better than those for pensions and of course they are hugely more flexible.

clairehi

Thanks Ed but he's a higher rate taxpayer so a pension is going to be preferable to an ISA AFAIK.

jamesd

I like the Hargreaves Lansdown pension calculator. You should check the assuptions and related advanced options in case those are inappropriate for you.

EdInvestor

You need to compare the investment options and charges of the company scheme and the Prudential scheme to start with, and if neither of them are up to much you can then look around for a better alternative.

clairehi

Im not making much progress on this. To summarise the situation, we need to decide how to invest a total of about £25K from old pension pots, and to decide whether DH should join the company/Prduential scheme are one and the same or make his own arrangements.

Do you think this is too simple or low value a job for a pensions IFA to bother with.

I have spoken to two IFAs. One was seemingly reluctant to advise; he said that basically the Prudential scheme seemed as good as any. Possibly he just wanted to save his time and my money by not getting involved.

The second guy wanted us to give him authority to deal directly with the pension providers before I had even outlined the situation to him let alone decided whether we want to give the business to him. When I told him the amount of money involved, he seemed surprised and possibly disappointed, I think he was expecting it to be a lot more. He promised to email me and I havent heard back from him.

Maybe I am making this too complicated, but I just want to make sure we get best value for our money.

dunstonh

A pension is an investment. If the investment options offered by the Pru scheme are good and its cheap then it could be the best option. If the investment options are just 6 passive managed funds offering little variety then it doesnt really matter if its cheaper or not as the reduced potential for growth over the long term will be more than the charges difference.

I cannot remember if its been mentioned or not but if the employer pays into the scheme, then you should always go with the scheme upto the point where they stop matching or enhancing the contributions.

I have spoken to two IFAs. One was seemingly reluctant to advise; he said that basically the Prudential scheme seemed as good as any. Possibly he just wanted to save his time and my money by not getting involved.

Of course its hard to say without knowing the scheme but Pru dont normally offer much in the way of quality funds but can often offer what they have quite cheap.

There is a problem in the industry at present where you see some advisers not willing to do pensions when a cheaper scheme is available because they are scared of a future come back. i.e. Adverts from claims companies in years to come saying "sold a personal pension when you should have been in a cheaper pension". This is a by product of rule RU64. So you have some advisers only doing stakeholders or telling people to join the company scheme regardless of whether its any good or not. A better quality adviser would analyse the scheme and discuss the options with you a bit more before making a recommendation but that would involve finding out about what you have already.

Its rubbish really as the cheaper scheme only needs to be documented as an available option and the reasons why the more expensive scheme was chosen. Those reasons need to be valid and used.

Maybe I am making this too complicated, but I just want to make sure we get best value for our money.

Possibly. A good IFA will want that authority signed before giving advice. So, you are going to have to give in on that front. However, you need to find an IFA you like first so you are willing to give in.

£25k is not a problem for any IFA other than perhaps employed IFAs or IFAs attached to a firm who have to share their income with the firm. Lets assume it was done on full commission at 4% and he only gets 30% of it, then the end result is £300 and many IFAs wont touch a transaction that small. An owner/partner/director IFA getting the full amount of commission would be more interested and they would have scope to discount as well. Remember the term IFA covers a wide range of different business models as well as different types of adviser.

EdInvestor

If he opted out of the company scheme, they would give him the 8% employers contributions in cash. Is there anything to stop us taking this and his 5% and investing it via another personal or stakeholder pension elsewhere if we wanted?

Would they pay it into a SIPP? A low-cost online SIPP is the easy route to the best quality funds at discounted charges.If they would, you may find it's a lot faster to go this way.

You can find quality funds at the same price with an insurance co personal pension,but navigating the system seems to require an IFA's help. Which, in the circs...... :rolleyes:.

clairehi

Cheers Dunston,

The tricky part is that the 8% employer contributions will be paid to us in cash if DH doesnt join the employers Pru scheme so there is the possiblility to put them in another pension scheme I think.

The Pru stakeholder scheme has charges between 0.55-0.65% and has about 15 funds to choose from including some internal ones and others managed by Aberdeen and ?Aquila. The first IFA more or less said my guess was as good as his when it comes to future fund performance which was not particularly inspiring. He basically said that a big insurer like the Pru were not going to offer really dodgy options.

I know I do need outside help here - Ive just been looking at the documents for his protected rights scheme and for a start I cannot work out exactly what the charges are. There seems to be charges of 1.5% on the funds, plus an administration cost which is not quantified, and also it seems to say that they only use 96% of the rebate to buy units with, presumably keeping the other 4% - eek.

I am happy to pay for someones time to research the options, but if it is going to take say ten hours at £150 an hour to do the research and come up with recommendations then thats not an insignificant proportion of £25K. I was wondering if the work could effectively be cross-subsidised by commission on arranging some term assurance and PHI which we also need. Or would this be dodgy?

ps If we have to sign an authority then so be it, I just need to know exactly what it entitles the adviser to do in order to make an informed decision.

dunstonh

The first IFA more or less said my guess was as good as his when it comes to future fund performance which was not particularly inspiring. He basically said that a big insurer like the Pru were not going to offer really dodgy options.

Usless answer for you.

I was wondering if the work could effectively be cross-subsidised by commission on arranging some term assurance and PHI which we also need. Or would this be dodgy?

That is perfectly fine method. I do most of mine that way. Its often referred to as a hybrid