Should we use an IFA?

enthusiasticsaver

I have posted a few threads about my OH's pension as he is retiring this October 2016. I wonder if I could get feedback on the pension itself and the IFA recommendations

Catalogue of errors from pension administrators in getting wrong quotes but eventually we got an accurate quote back in April for 31 October 2016 showing that OHs pension would be £16903.20 on the main final salary pot (which was frozen in 2008 with 25 years benefits) or he could take £15823.32 and a levelling pension until SPA of £3489.60 making a total of £19313.04. A tax free lump sum of £137045 quoted in April (now higher) would come entirely from the Investor pot which is his current defined contribution pot from 2008 to today. This was the option we were leaning towards plus taking an annual pension of £3142.20, including spousal protection of 60% ( a return our IFA tells us is 4.3% per annum) from an AVC and protected rights pot from when the scheme was contracted out. These 2 pots total £73052 and apparently all 4 pots are connected somehow. This would mean we got lump sum of £137045 and a total annual pension of £22455. We were happy with that but had engaged an IFA to see if there were other options


We see our IFA today and he starts talking about this really good offer whereby we could leave the total pot invested within the current scheme and the company would give us a GAR 5% which he said he could not match on the open market and would give us a pension of £35k per annum but no tax free lump sum. We were not really comfortable with taking that and told him as we want the lump sum for holidays, new car etc and if we took £35k as a pension we would still be paying quite a lot of tax each month.

The IFA was talking generally about the figures and mentioned a £27k annual pension we would get from figures the company had sent to him and I expressed surprise that my figures had only come out at £22k and wondered at the 5k discrepancy. It turns out when I inspected the quote sent to him last month it had as the quoted retirement date 31 October 2023 instead of the actual date of 31 October 2016. This would be his NRD as he is retiring early at 58. Yet another error but I was actually surprised the IFA had not spotted this either but all his figures had been worked out on these even though he had spoken to someone in HR as he could not get the relevant information. This meant when reworked that the excellent annuity rate of 5.06% was in fact 4.3% (he says) should we leave the whole amount invested.

Should I be concerned that the company does not seem to be able to get even quotes right and that our IFA did not spot it?

I have told the IFA that we will be taking the lump sum option and he did go through and explain everything which is what he hired him to do but I am now wondering should we use him to invest the £140k approximately when we get it or use my own knowledge of investing to do this myself? His charges will be 2% if he invests it and I can tell he is leaning towards active managed funds although I have told him our existing investments are in passive trackers (Vanguard LS strategy 60). He also did not want us to sign our risk profile forms yet which both came out cautious to moderate.

Any advice? Would others have taken the higher pension (probably not 35k as the quote had wrong date) and foregone the tax free lump sum? We do have savings and investments 60/40 in stocks and shares and high interest current accounts and regular savers and will be investing the bulk of the tax free lump sum but it seemed to me foregoing this meant we would be paying a lot more tax over our lifetime on the pension.

bigadaj

Well I did question whether you needed him in your other thread....

It makes sense to maximise the tax free lump sum and you appear to have adequate provision in terms of savings and some investments.

There's doesn't seem a lot of point paying him nearly three grand to invest in a manner in which hunch you're not entirely comfortable.

I'd self manage if I were you and do some reading up on drawdown, making sure you're investing in a manner and risk level you are comfortable with. Keeping sufficient liquid funds is important to ensure you arent affected by slumps and market crashes.

enthusiasticsaver

bigadaj wrote: »

Well I did question whether you needed him in your other thread....

It makes sense to maximise the tax free lump sum and you appear to have adequate provision in terms of savings and some investments.

There's doesn't seem a lot of point paying him nearly three grand to invest in a manner in which hunch you're not entirely comfortable.

I'd self manage if I were you and do some reading up on drawdown, making sure you're investing in a manner and risk level you are comfortable with. Keeping sufficient liquid funds is important to ensure you arent affected by slumps and market crashes.

Yes you did in fact question it but in this case we just paid him to unravel the pension information which he did I guess even though some of the information was inaccurate which I suppose is not his fault. We just need to pay him at his hourly rate #145 for the work he has done so far. I think you are right and we will manage this ourselves. I have just worked out the correct figures and the lump sum will be #145k so 2% of that is almost three grand. First time I have used an IFA and on talking to him I realise that I knew more than I thought I did . I will read up on drawdown thanks.

edinburgher

If you're actively choosing passive investments, you'll realise that damage that 2% in fees will do!

I was very impressed by the depth of knowledge you had on your pension arrangements over on the other thread. If you apply that sort of level headed insight to managing your investments in retirement, I can't see you going far wrong :beer:

enthusiasticsaver

edinburgher wrote: »

If you're actively choosing passive investments, you'll realise that damage that 2% in fees will do!

I was very impressed by the depth of knowledge you had on your pension arrangements over on the other thread. If you apply that sort of level headed insight to managing your investments in retirement, I can't see you going far wrong :beer:

Thanks. Yes I figured that Edinburgher. I have learnt so much from this forum and am still learning. Not saying I know as much as a professional IFA that is but I think I know our risk profile better and at least will be comfortable with the decisions being made if we are managing it ourselves. It is also hard to see how much added value using an IFA gives considering there are no guarantees on performance of funds and there is so much evidence around that says managed funds do not perform better than passive. As you say £3k is quite a lot for debatable added value.

dunstonh

It is also hard to see how much added value using an IFA gives considering there are no guarantees on performance of funds and there is so much evidence around that says managed funds do not perform better than passive

Our model portfolios outperform VLS at every risk level. However, I have plenty of clients on VLS and L&GMI as they are ideal for smaller investors.

Managed fund performance has nothing to do with using an IFA.

enthusiasticsaver

dunstonh wrote: »

Our model portfolios outperform VLS at every risk level. However, I have plenty of clients on VLS and L&GMI as they are ideal for smaller investors.

Managed fund performance has nothing to do with using an IFA.

Of course not, it is down to the fund managers how well they perform but it is the IFA that recommends which ones to use. I just prefer to be in control of our own investments and am comfortable with the risk level of the VLS60 and like the fact it is widely diversified and does not require constant rebalancing. No guarantees though with either managed or passive so I just view it as a personal preference. I take the view that it will do better than an internet saver in the long run and need to put it somewhere.

edinburgher

dunstonh wrote: »

Our model portfolios outperform VLS at every risk level. However, I have plenty of clients on VLS and L&GMI as they are ideal for smaller investors.

Managed fund performance has nothing to do with using an IFA.

Dunstonh,

I'm sure I know the answer to this because you're usually very thorough, but do they outperform after fees? If so, are you able to share a percentage range for the outperformance?