IFA charges for advice confirmation letter

gadgetmind

Brightspark87 wrote: »

I would day 99% of providers will not allow you to withdraw the whole fund without confirmation you have received advice.

A whole load wouldn't ask for anything of the sort as their is no legal requirement under section 48 unless "a member of a pension scheme has subsisting rights in respect of any safeguarded benefits".

The OP hasn't said what safeguarded benefits they are giving up.

Note that section 48 also stuffs attempts to avoid the heavy IFA fee by simply transferring as you need to provide advice before "making a transfer payment in respect of any of the benefits with a view to acquiring a right or entitlement to flexible benefits for the member or survivor under another pension scheme" and even "paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits."

It really is a nasty bit of legislation.

Paul_Herring

Firstly can I say how unhappy I am that you all assumed this IFA was a man?

Would would sie prefer to call mer?

HappyHarry

Firstly can I say how unhappy I am that you all assumed this IFA was a man?

I had to re-read those posts three times before I spotted that.

Thank you for pointing it out Brightspark87.

Please accept my apologies - that was extremely poor wording on my behalf. I shall endeavour not to make such a stupid error again.

dunstonh

Secondly, I would day 99% of providers will not allow you to withdraw the whole fund without confirmation you have received advice.

Not my experience. Most are fine. A few quirks with some.

jamesd

dadsma wrote: »

She is age 63 and has an old Scottish Provident defined contribution pension policy worth £40k

She wishes to withdraw it all in one go in order to pay off an expensive mortgage. She is aware she will get 25% tax free and have to pay the marginal rate of tax on the balance....
the pension company refuse to accept her instruction without written confirmation from an IFA that they have provided specific advice on the option she has chosen. They refer to section 48 of the Act and the Transitional Provisions (SI2015/742) which they say require the letter and they cannot accept my friend's confirmation....
Is my summation correct or have I misunderstood the situation?

It's close but not quite complete in a way that happens to matter in this case.

First, the advice requirement is "in writing". An email is "in writing", a letter is not required. This will make no difference to the charge an adviser will make, so this part doesn't matter.

What does matter is that the advice requirement applies only when the protected amount is more than £30,000.

So the first thing she can do is take 25% of the pension pot as a tax free lump sum. That will reduce the pot value to £30,000, an amount where there is no requirement for advice.

If the amount is a bit over this, look into what things can be done that cause the provider to make charges and take the money from the pension pot, or look into investments in areas that are likely to decrease in value to get below the limit. Naturally it wouldn't make sense to deliberately blow more money than the cost of advice, but this is a useful technique for lower amounts.

jamesd

Another approach that might be tried if the safeguarded benefit is a guaranteed annuity rate is to point out that the member is entitled to defer the state pension and get 5.8% inflation-linked income for life and ask them to calculate the value of the safeguarded benefit on that basis. Their GAR will almost certainly be lower than this so the value of the safeguarded benefit in reality will be lower than £30,000 because of the poor income level from the GAR compared to the state pension.

For example, say the GAR is 4% inflation-linked. She might assert that since she can get 5.8% inflation-linked, the real value of the GAR is just 4/5.8ths of what the claim it is: how much it would really cost to buy the GAR benefit level from the government by deferring.

She should expect them to resist this and it may well take bringing the matter to the Financial Ombudsman Service to get them to use a sensible valuation for their benefits. They will naturally prefer to lock her into their own products and will naturally want to use only their own product valuations instead of the real world when working out the value.

There is no certainty at all of success with this, it's a novel approach that seeks to force them to justify their valuations and accept that they are bogus.

In this specific case it may be pointless if she has said that she wants to withdraw the money to pay off a mortgage, since that proves that she is not going to use the state pension option.

dadsma

Thank you all for your replies. I have asked my friend for more detail about the pension product, in particular details of safeguarded benefits.

I have read and tried as a layman to understand section 48 of the Pensions Act 2015 and the Transitional Arrangements. It seems to confirm that for amounts over £30k the provider must obtain written confirmation from an IFA that advice has been given.

Regulation 7a states the written confirmation must be "that advice has been provided which is specific to the type of transaction proposed by the member or survivor". Is it reasonable to interpret that as meaning the retiree is not required to get advice on alternative outcomes?

It occurred to me that one aspect not covered by the act is that there is no test to ascertain whether the retiree actually understands any advice given to them.

gadgetmind

Surely just an invoice from the IFA for "advice relating to withdrawing xyz in full as cash" or something like that should do it? It's in writing, it shows you've had specific advice, so job done. They don't ask to see the advice, or to know what you were advised, just that advice has been given.