Flexible drawdown 'pot' with Total Expense Ratio of 1.80%

TrickyDicky101

Hi All

I would like opinions on whether the above represents good value for money (excluding investment gains)?

This plan is in operation (it is my father's) and includes the IFA's trail commission and the platform charge and fund AMCs.

The fund is not overly large (c.£80k) as it has been depleted in recent years as my father withdrew up to the higher rate tax limit.

Given the pension changes and the ability for this fund to now pass down the generations the original plan to withdraw the maximum each year whilst remaining within basic rate tax is now being reconsidered.

I feel that 1.80% is high (the funds are largely equity income based in an active mandate and have followed the market up in the last 2 years or so). One option under consideration would be to move to passive mandates but the TER only drops to 1.64% which seems rather high to me.

Changing to the passive mandate also removes the trail commission element although the IFA would continue to be remitted via quarterly fees (at the same level).

The other possibility would be to move to a basis of being billed by the IFA when work is actually requested. This would reduce the TER on the passive mandate to c.1% (albeit without ongoing IFA support).

I suspect that moving the funds to another pension provider/platform would incur too much in the way of set up fees/costs to justify such a move so the options would be:

1. Continue withdrawal each year within BRT (about £15k pa so 5/6 years before fund exhausted - this may well exceed my father's remaining life)
2. Leave fund alone (TER 1.80%)
3. Move to passive mandate, retain IFA charging (TER 1.64%)
4. Move to passive mandate, no IFA involvement (TER 1.0%)

My father has no immediate need for the money and has sufficient non-pension assets/readily realisable investments to cover future spending. He is in poor health so potential care costs could be a consideration although statistically speaking imminent death is much more likely than prolonged care needs.

My personal view is (4) looks good.

Any opinions/thoughts appreciated.

gadgetmind

What's the overall IHT situation like? No mention of mother, so I guess he's a widower?

TrickyDicky101

Sorry - crucial info missed out.

Mother is still alive and is adequately covered by existing pensions (mix of State and spouse pension from my father) should my father expire. Mother is in relatively good health (and is a little younger than father) so could conceivably live for a further 10 years+.

There is no liability within the estate to IHT under current limits.

Daniel54

I would leave well alone.

For your father,preservation of capital is likely to be a much more important consideration than future capital growth -making a small saving in charges in exchange for increased volitility and risk of capital loss does not seem the way to go,particularly as his time scales might be relatively short.

gadgetmind

Daniel54 wrote: »

making a small saving in charges in exchange for increased volitility and risk of capital loss does not seem the way to go

Agreed, but reducing charges could equally well deliver the same or even loss volatility and risk of capital loss.

Of course, paying the massing fees being discussed here, and then doing your own drawdown and IHT planning, doesn't make much sense. The IFA should at least be doing *something* to earn their crust.

TrickyDicky101

I agree preservation of capital is probably most important but the fund is exposed to significant market risk at the moment so I don't see that it would necessarily be increased by moving to another mandate.

To be fair to the IFA, there have been two recent meetings with him (which I attended) which were very constructive and helpful. However, this was point in time advice that might well justify a fee at the point of delivery but I don't see it requires ongoing fees to be paid out of the invested funds.

gadgetmind

TrickyDicky101 wrote: »

I don't see it requires ongoing fees to be paid out of the invested funds.

No-one does, other than IFAs!

Linton

Do you have POA for your father or is the decision actually his? How old is he?

My reasons for asking are these....

If you have PoA then you are duty bound to act in his best interests rather than those of potential beneficiaries. If he is very old and/or frail I believe his best interests would be best served by keeping the money in cash, or close to it. Even if he has a longer life expectancy I think you should be investing far more cautiously then you would for yourself. Again with POA it could well be prudent to pay a sensible amount for professional advice so there could be no questions on your judgement should the investments be decimated by a crash. "Going passive" isnt sufficient as a strategy - someone still needs to decide on the portfolio asset allocation.

If you dont have POA then the decision is his responsibility and he should make it, with your advice if need be. It would be sensible to ensure that he does actually have a choice to make from various viable options rather than a simple yes or no to a predetermined proposal.

Depending on circumstances what I am saying may seem OTT, however you do need to be very careful, and be seen to be very careful, when handling other people's money.

TrickyDicky101

Yes, POA over both parents. Father is mid-70s. Whilst his cognitive ability isn't what it was, he hasn't lost (all) his marbles yet so the decision remains his.

The passive mandate under review also includes asset allocation by the provider.

I tend to agree that the invested funds should be very cautiously invested with only limited exposure to stock markets (either debt or equity).

I will think on this.

Thank you all for your posts.

dunstonh

To be fair to the IFA, there have been two recent meetings with him (which I attended) which were very constructive and helpful. However, this was point in time advice that might well justify a fee at the point of delivery but I don't see it requires ongoing fees to be paid out of the invested funds.

Tax efficiency.

Pension investments have had tax relief on the contributions. So, paying the fee via the pension is more tax efficient than paying it directly. The payment of the fee out of pension also does not get taxed as income.

With many modern pension contracts, there is a cash fund that handles ins and outs and fee comes out of that. So, there is no need for the investment funds to pay the charge. Older contracts or more basic contracts may not offer that option. Although they can often be cheaper. So, it is just part of the pros & cons when selecting contracts and meeting the needs.

TrickyDicky101

Tax efficiency is an interesting consideration and one that's all too easy to overlook. Thank you!