IFA Quote

gadgetmind

Aegis wrote: »

Admittedly, I only needed to actually adjust a PIP for one client this year because most have more than enough carry forward without using next year's allowance as well.

I've now used all of my carry forwards very effectively, and also now have all of my pots tax year aligned, which makes life easier in future. However, I will need to look at VCTs to avoid paying far too much tax.

PIPs are complicated if you've never read about them before, but after a while they become relatively straightforward.

Whoever prepared the Friends Life factsheet on PIPs *does* understand the rules, and they clearly state that a member would need to start a new scheme to achieve what I wanted. However, those I dealt with at FL kept suggesting alternative methods, all of which were specifically not allowed by the PIP legislation.

Here is the contents of one cell in my PIP "what if" spreadsheet. This little beauty works out how much carry forwards is lost under the three year rule, and clearly I want to optimise this to be zero, while avoiding overpayments and also dodging any nasty tax brackets (both now an in future years.)

=-IF(E22<0,0,IF(F23>E25,0,IF(F23<C22,IF(G23<D22,IF(H23>E22,0,E22-H23),IF(G23>(D22+E22),0,IF((D22+E22)<(G23+H23),0,(D22+E22)-(G23+H23)))),IF(F23<D22+E22,IF(G23<D22-(F23-C22),IF(H23>E22,0,E22-H23),IF(G23>E25-F23,0,IF(H23>E25-F23-G23,0,E25-F23-G23-H23))),IF(G23>E25-F23,0,IF(H23>E25-F23-G23,0,E25-F23-G23-H23))))))

Oh, and I understand that PIPs came in with pensions "simplification".

gadgetmind

dunstonh wrote: »

It should also be noted that just because something is possible does not make it ethical

I understand that Mr. T Blair's pension machinations may fail the ethics test, but (of course) some people have something of a shortage of those.

jamesd

DancingBadger wrote: »

We told him we would like to be flexible, drawing down funds whilst OH continues to work, albeit not doing so many hours, and also make pension contributions from earned income. His response indicates he seems to have misconstrued this completely, making a few comments about recycling pensions, and also managing to insult us in the process:
"In any case, you are short of income [we're not], so I can’t see why you would want to be making contributions – you want the opposite: to utilise the funds. It is illogical to draw on a pension fund and pay into it at the same time, unless you are trying to pull fast one on the Revenue, something I don’t approve of!"

What you're considering seems entirely sensible. There is a tax relief benefit from doing it even if it's all the pension of one person.

Of course if it's contributions to the pension pot of one person while drawing from the pension pot of another it's obviously fine and has a clear purpose of moving the money between individuals while gaining on tax relief.

There is no general prohibition on recycling pensions. Pension income can be freely used for more pension contributions, up to the £40,000 or earned income limits. Also there would be a reduction in the annual allowance from £40,000 to £10,000 if more than the 25% tax free lump sum was taken from 6 April 2015, except where there's a pot already in capped income drawdown that allows the GAD limit to be taken each year. There are restrictions on recycling pension lump sums, though.

In your situation you're effectively using the pension as a buffer to deal with variable income. That combined with the tax relief makes it an entirely reasonable plan.

DancingBadger

Having used the Christmas holidays to re-read your posts and reflect on our situation, i came to the conclusion that we really are too green and don't know enough about investing (yet) to manage without IFA advice - at least for the next 2-3 years, so...

What should we reasonably expect of an IFA?

We're still trying to find the right person for us and have two initial meetings set up over the next few days (both recommended by friends).

Are there any key questions we need to ask?

If I sound naive, it's because I am. :embarasse It was all so simple 30+ years ago - work, pay into a pension, then retire and enjoy the rest of your life. Now the thought that keeps going round my head is a fool and his money are soon parted.

I feel like a rabbit caught in the headlights.

kangoora

I asked something similar about 5 months ago, more about risk and potential 'dodgy' dealings. Have a read through the responses and see if any further questions you can think of

https://forums.moneysavingexpert.com/discussion/5031508

gadgetmind

DancingBadger wrote: »

Now the thought that keeps going round my head is a fool and his money are soon parted.

Don't worry, it can be daunting to start with, and even now I have problems pressing the button when large sums are involved.

Perhaps key is understanding the different kinds of risk, and how to avoid them or even make them work for you.
1) The biggest risk to most investors is themselves. Human emotions make us very loss averse, and we hate even short term losses even if the long term trend is good. This is what causes people to panic and sell everything, and is by far the main way that people lose. Even using an IFA doesn't protect you from this, which is why IFAs try and judge your attitude to risk.
2) Not diversifying. If you don't spread investments widely, you end up exposed to single companies, sectors, or countries, far too much. You also need to hold different types of assets, which can increase long term gains while removing some of the big losses mentioned above.
3) Thinking it's harder than it is. Running a balanced portfolio is actually very easy, what's difficult is all of the government regulations surrounding pensions and ISAs. An IFA can definitely help here.
4) Not taking out insurance. Even the best plans can be derailed by critical illnesses, and even though it's expensive, you probably don't want to take the risk. Again, and IFA can help here.

DancingBadger

Well, our second IFA recommendation came from friends (our accountant recommended the first one) who we've always considered to be fairly switched on. Not so sure about that now.

To cut a long story short, he told us that the industry standard for initial advice was 5%, but in view of the amount involved he would be prepared to take us on(!) for a fee of 3% plus 1.25% ongoing fee - so a cool £20400 for the first year alone. :eek:

He was very keen that we should understand we wouldn't need to pay anything as his fee would come directly from our funds. :rotfl:

Next one tomorrow. I can't wait.

Mirador

We have a similar size fund between us.
The quote for initial advice and rebalancing was over £6000.
The firm took all our pension details and here we are 4 months later and nothing back. Summer holidays, staff sickness, Christmas, all the usual excuses when we have chased them. They were recommended by our accountant.

We have given up and are looking for a new advisor, but not happy that the previous company took all our financial information and did nothing.

dunstonh

To cut a long story short, he told us that the industry standard for initial advice was 5%, but in view of the amount involved he would be prepared to take us on(!) for a fee of 3% plus 1.25% ongoing fee - so a cool £20400 for the first year alone.

All BS. For collective investments, the average recorded by the FSA some years back was around 1.8% plus 0.5% p.a.

He was very keen that we should understand we wouldn't need to pay anything as his fee would come directly from our funds.

Sounds like this one was out of the ark. Whilst you can pay the charge from the fund (and there can be good reasons to do so - e.g. tax relief on the fee), the fee is still paid by you and no-one else.

saver861

DancingBadger wrote: »

Having used the Christmas holidays to re-read your posts and reflect on our situation, i came to the conclusion that we really are too green and don't know enough about investing (yet) to manage without IFA advice - at least for the next 2-3 years, so...

What should we reasonably expect of an IFA?

This is the classic chicken and egg problem as far as I am concerned. You don't have enough knowledge so need to ask and IFA - conversely, you need enough knowledge to converse and challenge an IFA's advice, decisions etc.

My own approach is to do the groundwork myself. What I don't understand I need to learn. I can't become an expert of course, but I can put myself in a much more elevated position of knowledge.

I won't necessarily take 'my own advice' but what I will do is establish some form of plan pertaining to my requirements. However, if I felt it necessary, I would then employ the services of an IFA to either 'validate' my plans or to make other recommendations.

That way I would feel I had sufficient knowledge to make my own assessment on whether the information provided by the IFA was worthy and reasonably correct in all aspects.

Not to do so is really putting all your resources in the hands of an IFA. If the advice given is incorrect, or even beyond reasonable risk, costs, etc, etc, then by the time you find that out, it is usually too late.