Costs and Drawdown - what to do

V12noise

I am considering retiring and approached an IFA for some advice and possibly going on with his products. Before this, having done some research, I decided that a draw-down pension at approx £20k p.a. would be the best way forward for me.

So the first thing that knocked me back is that he charges 3% for the setup and 1% annually. So that means in 2 years he has taken £15k off me which is nearly a year's draw for me. OK, so in subsequent years it's "only" around £3.5k per year, but is this normal and more to the point, is it right? Is the fund really going to grow that much due to him?

The next question is, is a DIY pension management the only other answer, or can it say be left with the current pension companies that it was paid into, where they charge approx 0.5% p.a. to look after it?

AlanP_2

Charges do sound high compared to what some on here have quoted before.

You do need to compare Apples with Apples though. Your current pension company is doing a lot less for the 0.5% you pay than you want the IFA to do for you.

Currently I would think that you choose what your pension is invested in. Alright you may have gone with their default fund many years ago and stuck with it but it's still your choice so the 0.5% is just for admin essentially.

The IFAs fee will include an admin element but he will be advising on what to invest in, when to make changes, tax implications, advising on whether to take TFLS up-front or spread across regular withdrawals, possibly inheritance implications and so on (hopefully at the family unit level by considering other sources of retirement income, overall spend requirements etc.).

I'm not saying that is worth what he proposes to charge just pointing out that if you don't pay someone for all that you have to do it yourself as your current pension company certainly won't.

BTW - Worth checking that current companies offer drawdown on your plans and compare costs with other providers.

wjr4

The initial adviser fee is way too high! I'd keep looking elsewhere. Make sure they are fully independent and not tied to any providers.

dunstonh

So the first thing that knocked me back is that he charges 3% for the setup and 1% annually. So that means in 2 years he has taken £15k off me which is nearly a year's draw for me.

1% is common figure for investments valued under £100k but overall 0.5% is the dominant figure for advisers.

3% has to be taken in context of the amount. If it was 3% with no tapering or doesn't have a cap and collar on the charge then it can be very expensive for larger amounts. If there is a cap and collar or there is tapering then it can be good value.

In your case, the figures seem high and you can do better elsewhere.

The next question is, is a DIY pension management the only other answer, or can it say be left with the current pension companies that it was paid into, where they charge approx 0.5% p.a. to look after it?

Its not the only answer. Using a better value adviser would also be on the table.

Can the existing providers offer drawdown?
Are their plans competitive to current market versions?
Providers do not provide advice. They provide the product/software.

thriftytracey

Our IFA charged 1.5% (discounted after I haggled) to arrange a Drawdown on a total fund of £187k. I called a few IFA's to get quotes.

tacpot12

It still doesn't compare well to DIY. Zero costs in the first year and zero in all subsequent years! So the IFA has to beat your investment selections by at least 1%, and taking 3% at the outset gives your pot an immediate and severe hit - this is 3% of your pot that is never going to benefit from compound growth. I'm not convinced that an IFA can deliver this. I'd want to see some pretty compelling evidence.

I also object to the manager charging any extra at the outset, when in all likelihood all he is going to do is allocate you to a preexisting model portfolio that is already setup for all his other clients with the same risk appetite. Unless your needs are very specialised, I think you should be paying 1% or less per annum for active management of the portfolio.

MK62

V12noise wrote: »

I am considering retiring and approached an IFA for some advice and possibly going on with his products. Before this, having done some research, I decided that a draw-down pension at approx £20k p.a. would be the best way forward for me.

So the first thing that knocked me back is that he charges 3% for the setup and 1% annually. So that means in 2 years he has taken £15k off me which is nearly a year's draw for me. OK, so in subsequent years it's "only" around £3.5k per year, but is this normal and more to the point, is it right? Is the fund really going to grow that much due to him?

The next question is, is a DIY pension management the only other answer, or can it say be left with the current pension companies that it was paid into, where they charge approx 0.5% p.a. to look after it?

The IFA charges do seem a little steep tbh - as others have said, perhaps you should shop around if you really don't fancy the DIY route (for whatever reason).

As to your current pensions, it depends on each scheme - some won't provide drawdown, so you'd have to transfer any which don't, but I think your first priority is to discover just what your current schemes offer and what their extra charges are in drawdown, if any.