Talk with an IFA - your thoughts please?

freda

I have just spent 1.5 hours discussing pension options with an IFA. He seemed very logical and upfront, however as I am naturally cautious and like to understand about things before I make a choice, I would appreciate your comments on the key points that came out of the meeting. Note that our pension will be in my husband's name as he is a 40% tax earner and I do not pay tax.

1. My husband has £27k in a pension after opting out for 19 years. IFA said that the NI contributions he made would still count towards the 35 years necessary for the new flate rate pension, and that he should get the flat rate pension plus an income from the £27k

2. IFA said that stakeholder pensions had higher costs for the first 10 years, and you needed to change them to a personal pension when you retire anyway to get any income. He recommended taking out a personal pension, not a stakeholder.

3. We are unlikely to retire till 65 or so, but the IFA suggested that at age 55, we could 'crystallise' 25% of a pension pot at that point, take it as a tax free lump sum then re-invest it into the same pension, getting a 40% tax rebate back straight away.

4. He suggested, at age 49, we should invest in 'offshore trusts' so that we didn't have to pay tax on the income from our capital. He was quoting a guaranteed 3.25% minimum income for life by doing this and suggested it as preferable to buying an annuity which gives much lower returns. I think the proposal was that the initial funds for this trust would come from a stocks and shares ISA pot that we could save between now (age 39) and age 49.

5. We can currently afford £300pcm into a pension, rising to a lot more once I start working in 5-8 years time. IFA said that he would choose the best pension provider and investment strategy based on our attitude to risk. I asked how I could learn enough to do this myself, but he was adamant that it wasn't feasible for a layperson to learn enough about investment to do this effectively. I do sort of agree, I am finding it quite hard to learn about it and I've only just started.

The IFA charges a fee for his advice, and is sending a quote over the next week or so, outlining what he would advise and charge.

I will read more about all of the points above, but would appreciate any insights you have.

xylophone

http://www.adviceguide.org.uk/england/debt_e/debt_pensions_e/debt_starting_a_pension_e/choosing_a_personal_pension.htm
http://www.moneysavingexpert.com/savings/discount-pensions

Be careful of rules on recycling pension commencement lump sum.
http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104925.htm

http://www.hmrc.gov.uk/incometax/relief-pension.htm and see information on pension tax relief for non tax payer.

atush

1- Ok.
2- ?
3- as above, check the rules on recycling.
4- tread carefully
5- Absolute rubbish. This and no2/4 means to me you need to see another IFA. Where did you find this one? try unbiased.co.uk

I am assuming you are home with small children and used to work and are in possession of a decent brain. when I was in your shoes I was online learning on Motley Fook and other website, plus reading up, I knew very little about investing, and while not an expert now I am now a bit clued up and know a fair old lot. you can be clued up too.

and this marriage may not last, so you need pensions and assets in your name as well. All non Isa savings should be in your name for a start, if just to avoid 40% tax.

mania112

atush wrote: »

1- Ok.
2- ?
3- as above, check the rules on recycling.
4- tread carefully
5- Absolute rubbish. This and no2/4 means to me you need to see another IFA. Where did you find this one? try unbiased.co.uk

Point 2 is accurate. Savings are to be made from transferring out of most stakeholders. Plus, the cost of transfer will need to be born at some point, so why not now and benefit longer from the reduced charges (pp to drawdown is normally free from those that allow it)

Why is 5 absolute rubbish?

No offence to the OP (or the replies to it) but the suggestions from the IFA may be interpreted wrong.

He makes some good points, I think, and considering his points were made for free, over the course of 90 minutes, shows me he is clearly not a jack-the-lad.

You and I have yet to be proven any different.

dunstonh

1. My husband has £27k in a pension after opting out for 19 years. IFA said that the NI contributions he made would still count towards the 35 years necessary for the new flate rate pension, and that he should get the flat rate pension plus an income from the £27k

2. IFA said that stakeholder pensions had higher costs for the first 10 years, and you needed to change them to a personal pension when you retire anyway to get any income. He recommended taking out a personal pension, not a stakeholder.

3. We are unlikely to retire till 65 or so, but the IFA suggested that at age 55, we could 'crystallise' 25% of a pension pot at that point, take it as a tax free lump sum then re-invest it into the same pension, getting a 40% tax rebate back straight away.

4. He suggested, at age 49, we should invest in 'offshore trusts' so that we didn't have to pay tax on the income from our capital. He was quoting a guaranteed 3.25% minimum income for life by doing this and suggested it as preferable to buying an annuity which gives much lower returns. I think the proposal was that the initial funds for this trust would come from a stocks and shares ISA pot that we could save between now (age 39) and age 49.

5. We can currently afford £300pcm into a pension, rising to a lot more once I start working in 5-8 years time. IFA said that he would choose the best pension provider and investment strategy based on our attitude to risk. I asked how I could learn enough to do this myself, but he was adamant that it wasn't feasible for a layperson to learn enough about investment to do this effectively. I do sort of agree, I am finding it quite hard to learn about it and I've only just started.

1 - correct
2 - correct (in respect of cost). Stakeholders are almost obsolete now. Only really useful for very small amounts or very short terms.
3 - That can be viable for some people depending on their tax position and earnings. Not all, but some. There are rules to avoid abuse. Care needed.
4 - a viable option for those where it is suitable. Gross roll up and no tax to pay until in retirement when you cease to be higher rate and are basic rate instead can make it a good option for some. - Use of ISA to fund it seems strange though. I would put ISA ahead of a offshore bond in trust.
5 - Your choice is to IFA or DIY. There is no point paying an IFA to then DIY as the IFA can get the products cheaper than DIY after paying for advice.


edit following re-read and to emphasis on the fact it could be viable for some. It certainly will not be viable for all.

Aegis

freda wrote: »

I have just spent 1.5 hours discussing pension options with an IFA. He seemed very logical and upfront, however as I am naturally cautious and like to understand about things before I make a choice, I would appreciate your comments on the key points that came out of the meeting. Note that our pension will be in my husband's name as he is a 40% tax earner and I do not pay tax.

1. My husband has £27k in a pension after opting out for 19 years. IFA said that the NI contributions he made would still count towards the 35 years necessary for the new flate rate pension, and that he should get the flat rate pension plus an income from the £27k

This much seems correct.

2. IFA said that stakeholder pensions had higher costs for the first 10 years, and you needed to change them to a personal pension when you retire anyway to get any income. He recommended taking out a personal pension, not a stakeholder.

This isn't correct. Stakeholder pensions can be used to generate an income using an annuity. If you don't want an annuity, you might need to transfer to an alternative provider to access drawdown facilities, which means drawing an income directly from your portfolio, leaving the remainder invested.

That said, I'd agree thatg stakeholder pensions are largely obsolete, as it's possible to get cheaper pensions with much wider ranges of investments and retirement options.

3. We are unlikely to retire till 65 or so, but the IFA suggested that at age 55, we could 'crystallise' 25% of a pension pot at that point, take it as a tax free lump sum then re-invest it into the same pension, getting a 40% tax rebate back straight away.

As others have mentioned, this could very easily be illegal, especially if you're planning it this far in advance.

4. He suggested, at age 49, we should invest in 'offshore trusts' so that we didn't have to pay tax on the income from our capital. He was quoting a guaranteed 3.25% minimum income for life by doing this and suggested it as preferable to buying an annuity which gives much lower returns. I think the proposal was that the initial funds for this trust would come from a stocks and shares ISA pot that we could save between now (age 39) and age 49.

Can't fathom why he would recommend saving in stocks and shares ISAs (tax free) to then put them money into an offshore trust (probably taxable). Also, I have no idea where a guaranteed minimum income of 3.25% for life would come from by using such a vehicle.

5. We can currently afford £300pcm into a pension, rising to a lot more once I start working in 5-8 years time. IFA said that he would choose the best pension provider and investment strategy based on our attitude to risk. I asked how I could learn enough to do this myself, but he was adamant that it wasn't feasible for a layperson to learn enough about investment to do this effectively. I do sort of agree, I am finding it quite hard to learn about it and I've only just started.

Just not true, anyone can learn given enough motivation.

reheat

Could someone please explain point 3 to me, as I have a section 32 buyout plan from a previous employer, and need to access the 25% cash lump sum, without drawing any regular pension income until I'm 65 (I'm currently a few months short of 60). I've been assuming till now a Sipp is the only mechanism for achieving this.

OP - apologies for hijacking your thread slightly, but I imagine the answer will be useful to you also.

mania112

TFC Recycling as I know it:

Taking TFC (tax free...) then re-contributing it to a pension. For a higher rate tax payer, immediately gaining 40% on the contribution.

Taking it back out again when basic or no income tax is due.

The example used above is to do the same but contributing the funds to an offshore bond.

My knowledge on tax in this area is poor, but clearly there seems to be another benefit.

It's not really as great as some people make out in my opinion.

atush

mania112 wrote: »

Point 2 is accurate. Savings are to be made from transferring out of most stakeholders. Plus, the cost of transfer will need to be born at some point, so why not now and benefit longer from the reduced charges (pp to drawdown is normally free from those that allow it)

Why is 5 absolute rubbish?

No offence to the OP (or the replies to it) but the suggestions from the IFA may be interpreted wrong.

He makes some good points, I think, and considering his points were made for free, over the course of 90 minutes, shows me he is clearly not a jack-the-lad.

You and I have yet to be proven any different.

it is this point I was querying as incorrect- yes I agree stakeholders are now obsolete

and you needed to change them to a personal pension when you retire anyway to get any income.

And yes, 5 is rubbish. it is very possible with a little bit of time and application to learn about investing. To insinuate it isn't is disingenuous.

reheat

mania112 wrote: »

TFC Recycling as I know it:

Taking TFC (tax free...) then re-contributing it to a pension. For a higher rate tax payer, immediately gaining 40% on the contribution.

Taking it back out again when basic or no income tax is due.

The example used above is to do the same but contributing the funds to an offshore bond.

My knowledge on tax in this area is poor, but clearly there seems to be another benefit.

It's not really as great as some people make out in my opinion.

For me - if it worked, was legal, and safe - the benefit would be to get the 25% lump sum now, without having to take the annuity now.