Pension charges

wjr4

I'd keep looking for another IFA. Personally, I do not understand IFAs who charge excessive amounts for drawdown cases. £7k is too high & there should be a cap on their fee. I think around £2500 is probably the normal charge but that is still a lot higher than I would personally charge!

campbell19925

wjr4 wrote: »

I'd keep looking for another IFA. Personally, I do not understand IFAs who charge excessive amounts for drawdown cases. £7k is too high & there should be a cap on their fee. I think around £2500 is probably the normal charge but that is still a lot higher than I would personally charge!

You charge 1% upfront only?

What about your ongoing fee?

wjr4

Our charges are low because we have a secure client base and low overheads - we do not need to take high initial charges. Ongoing is usually 0.75% pa.

OldMusicGuy

I transferred six DC pensions into my HL SIPP for nothing. I can't see why you would pay someone 3% of a large pot for something you can do yourself. However, if you want someone to choose the investments for you then for some IFAs this may be a cost they lock you into because they will be transferring to their in house platform.

campbell19925

OldMusicGuy wrote: »

I transferred six DC pensions into my HL SIPP for nothing.

Congratulations.

OldMusicGuy wrote: »

I can't see why you would pay someone 3% of a large pot for something you can do yourself.

A) An IFA has to take responsibility for the advice they provide and therefore there is a risk of complaint and re-reimbursement. There is also all the work that goes into ensuring advice is suitable for a client as everyone has different needs and circumstances.

A lot of the time people dont know how to do it themselves, dont want to bother, are scared to out of fear of not doing the right things or actually CANT do it because they are in an occupational scheme or have certain safeguarded benefits.

OldMusicGuy wrote: »

if you want someone to choose the investments for you then for some IFAs this may be a cost they lock you into because they will be transferring to their in house platform.

A select few Financial Advisers will do this (likes of SJP) but most IFA's won't have their own in house funds and they wont lock you into a set term for ongoing advice

OldMusicGuy

campbell19925 wrote: »

A) An IFA has to take responsibility for the advice they provide and therefore there is a risk of complaint and re-reimbursement. There is also all the work that goes into ensuring advice is suitable for a client as everyone has different needs and circumstances.

A lot of the time people dont know how to do it themselves, dont want to bother, are scared to out of fear of not doing the right things or actually CANT do it because they are in an occupational scheme or have certain safeguarded benefits.

The advice to consolidate DC pots is pretty trivial. It's not like transferring DB pensions. There are plenty of posts on here that explain what is involved and how to decide.

Here's how you do it yourself. You choose a pension provider and fill in a form which they send to the current provider. The pension is then transferred. If that's too difficult and requires someone to pay a large amount of money for someone else to do it for them, then the point of Money Saving Expert is rather lost on them. Charging a percentage fee on a large pot for something that is very simple and straightforward is not something I see as good value for money.

If the pension is not a straightforward DC scheme and requires IFA advice (eg where it has a DB underpin), that's different. The OP should find out before they commit a large amount of money for something that could be simple.

Deciding where to invest the pension is a different question and I can accept people may want to use an IFA to do that.

So for the avoidance of doubt, here's what I suggest the OP does:

- Find out exactly what type of pensions they have by reading the documentation or simply phoning the provider and asking.

- Find out if either of the pension schemes have guaranteed benefits or anything that restricts a straightforward transfer.

- Find out if either of the current pensions offer flexible drawdown. The OP could transfer one to the other if one is better.

- Make sure they understand why they are consolidating. Do the existing pensions have some limitations (eg restricted set of fund choices, don't offer flexible drawdown)? Do they want to simplify things? Consolidating pensions doesn't necessarily mean they will do any better because that depends on the fund choices. Maybe the OP can do better by leaving the pensions where but choosing different funds.

The whole point is that the OP may not be aware of any of this and is just accepting that they have to pay money to someone because the first adviser they met told them that is what they had to do.

But maybe the OP is aware of all of this - windmillbank, what say you?

AnotherJoe

I dont see why you cant avoid the 3% transfer fee by doing the transfer yourself (assuming no complications as outlined in the post above).
Then, if you need help choosing funds, fair enough pay the IFA their 0.5% for advising on share choices on an ongoing basis.

windmillbank

OldMusicGuy wrote: »

The advice to consolidate DC pots is pretty trivial. It's not like transferring DB pensions. There are plenty of posts on here that explain what is involved and how to decide.

Here's how you do it yourself. You choose a pension provider and fill in a form which they send to the current provider. The pension is then transferred. If that's too difficult and requires someone to pay a large amount of money for someone else to do it for them, then the point of Money Saving Expert is rather lost on them. Charging a percentage fee on a large pot for something that is very simple and straightforward is not something I see as good value for money.

If the pension is not a straightforward DC scheme and requires IFA advice (eg where it has a DB underpin), that's different. The OP should find out before they commit a large amount of money for something that could be simple.

Deciding where to invest the pension is a different question and I can accept people may want to use an IFA to do that.

So for the avoidance of doubt, here's what I suggest the OP does:

- Find out exactly what type of pensions they have by reading the documentation or simply phoning the provider and asking.

- Find out if either of the pension schemes have guaranteed benefits or anything that restricts a straightforward transfer.

- Find out if either of the current pensions offer flexible drawdown. The OP could transfer one to the other if one is better.

- Make sure they understand why they are consolidating. Do the existing pensions have some limitations (eg restricted set of fund choices, don't offer flexible drawdown)? Do they want to simplify things? Consolidating pensions doesn't necessarily mean they will do any better because that depends on the fund choices. Maybe the OP can do better by leaving the pensions where but choosing different funds.

The whole point is that the OP may not be aware of any of this and is just accepting that they have to pay money to someone because the first adviser they met told them that is what they had to do.

But maybe the OP is aware of all of this - windmillbank, what say you?

This is exactly the info i was looking for.

Of the 2 pensions i have, one is doing very well, so i will transfer the under performing pension in to that one myself, i will then ask the pension provider about flexible draw down and if this is available, i'll find out if there are any costs and will do it myself.

thanks for the replies.

nigelbb

nigelbb wrote: »

My partner just got caught for this when she cashed in part of a pension. She wanted to withdraw £50K & calculated correctly that she needed to make two smaller withdrawals in separate tax years to avoid 40% tax but was hit by 40% tax anyway.

In fact the calculation is more complicated than just being hit with 40% income tax. The pension provider takes income tax using an an emergency PAYE code. With the emergency PAYE code they assume that this is your first monthly payment so they will:-
1) take off £1042 from the payment which is not taxed (1/12 of the standard personal allowance of £12,500)
2) tax the next £3125 at 20% (1/12 of the basic rate tax band of £37,500)
3) tax the next £9375 at 40% (1/12 of the higher rate tax band of £112,500)
4) Any remaining amount above £13542 is taxed at 45%

To reclaim the excess tax paid there are different forms to use depending on the circumstance e.g. if you have only taken part of your money out of a pension pot & you will not take another cash payment from the pension pot before the end of the tax year you claim a tax refund using form P55.

After some chasing HMRC by telephone last week she got the cheque for the overpaid tax this morning over a month since the excess tax was taken.

She will be withdrawing a similar large amount next tax year. Is there some way of priming the pension provider or HMRC so that she doesn't get caught by being taxed at 40% & having to reclaim it when it should only be taxed at 20%?

Linton

nigelbb wrote: »

After some chasing HMRC by telephone last week she got the cheque for the overpaid tax this morning over a month since the excess tax was taken.

She will be withdrawing a similar large amount next tax year. Is there some way of priming the pension provider or HMRC so that she doesn't get caught by being taxed at 40% & having to reclaim it when it should only be taxed at 20%?

A high tax deduction for one-off payments is a natural consequence of the way PAYE works. Each month is allocated 1/12 of the tax allowance and 1/12 of the band boundaries with unused tax allowance carried forward. So a one-off payment taken early in the tax year can give rise to very high tax rates.


Before the first payment is taken there will be no tax code, so the pension company has to use an emergency code. In subsequent years HMRC will provide a specific code.



So two ways of avoiding excess tax take after the first year:
- if you wife has sufficient regular income streams put all the tax allowance onto the regular streams and set the drawdown taxcode to BR (basic rate). This is what we do for our annual drawdowns.

- withdraw the money late in the tax year to give enough time for the monthly band allocations to accumulate.