Death Benefit advice, Defined Contribution Scheme

dunstonh

It is interesting that no one has suggested taking the pot in one lump sum as the best way forward. I have a good friend of mine who was an IFA but has since retired. He believes that the only pensions worth having are company final salary schemes

When did he retire?   Before 2015 I guess.   Prior to 2015, ISAs trumped Pensions for all but higher rate taxpayers and workplace schemes.  Post 2015, rules changed and pensions now trump ISAs for most people.

The problem with leaving an industry is that your knowledge goes out-of-date.     

He suggested that in many cases taking the lump sum is the best option and that an IFA might try and find something that offered the IFA more commission, such as using it to top up my own pension. His own recommendation is to invest in property in order to preserve its value.

Commission hasn't existed since the end of 2012.   So, it sounds like he retired before that.  So, he has missed out on RDR, FAMR, MiFIDII and the pension acts.  That would also mean he likely had lower qualifications as the qualification levels increased by 2012.   

So, he may be a friend but he is potentially more damaging to your finances than anyone else you know because he is playing the "used to be" card but is woefully out-of-date.   So, you may view him as knowledgeable but it sounds like you are probably now more knowledgeable than him just by reading this thread.

Being a landlord has changed as well. Taxation has increased (and is expected to continue), requirements on landlords have increased and rental yields have fallen.  Nowadays, it takes more knowledge to be a landlord than it used to be.  For example, many landlords are moving to a limited company structure to reduce their taxation.  Having building/refurshment skills can be important as well as there is still good money to be made there if you can do those things.

Regarding what people recommend, I can see where he is coming from. I am by profession an academic lawyer and used to tell my students that if you ask 10 insurance brokers to recommend you to the lowest quoting provider, I guarantee you will be recommended to 10 different providers. 

That will go with any retail product.    As an IFA, I am setting up at least three new investors this week and all three will be on different platforms.   There is no one best option that suits everyone.   Each of the three has its quirks and pros/cons.  I could have used any of them with all three individuals. There wasn't a lot of difference as all three are whole of market.     So, easily you could have had different recommendations from elsewhere.    And modern investment platforms offering over 30,000 investment options, you should not expect consistency.

The lowest providers are the ones who will pay the brokers little or no commission; and they are not going to recommend you to one of those. 

As commission doesn't exist with investments and hasn't for nearly a decade, then that is not an issue here.

Aristotle67

Thanks, dunstonh.

Aristotle67

I do appreciate the advice, guys, and receipt of advice was of course the reason why I posted. I have, however, noticed a pattern emerging.

When I have referred to a friend giving me advice for free, this has been pooh-poohed. An IFA is recommended.

When I pointed out about speaking with Pensionwise, this was in effect pooh-poohed. The hint was clear; an IFA is better and may be required.

When I suggest taking the pot in a lump sum, which I could do without the assistance of an IFA, this has not been recommended. 

In short, the IFAs on here have in effect recommended that I go to.....an IFA. 

A drawdown is seemingly the only option being recommended to me and, as I am sure those posting on here will know, I am not permitted by the provider to take the drawdown option without getting an IFA involved.

It seems that all roads lead to......an IFA.

Whilst I might make a living from betting, I only get involved when I believe I have an edge; otherwise I sit the event out. I specialise in certain sports which I have a good understanding of; any sports which I do understand, I leave to others. Any risks I take are calculated, and if the price is not right I do not get involved. You won't catch me down a casino playing roulette, blackjack or any game where the house enjoys an edge. The only thing I play at the casino is live poker, and I am careful as to which tournaments I participate in and which cash tables I sit down at. 

A safe option for the pension pot has not been recommended, and even low risk is not coming across as being recommended as a long term strategy. That does not sit well with me. There are certain things I would never gamble with and my good lady's pension pot is one of these. She worked too hard to put this at risk. She wanted as low a risk as possible, and so do I because I am comfortable with this and because it will honour her if I continue with her wishes.

Thanks again to all who have posted. I have people to speak with and decisions to make. 

dunstonh

In short, the IFAs on here have in effect recommended that I go to.....an IFA. 

No.   The choice is to DIY or use an IFA.  Forget other options.   However, if you DIY you will need to learn about this.  I did say earlier on that you need to read up in these areas.  I didn't say use an IFA.

A drawdown is seemingly the only option being recommended to me and, as I am sure those posting on here will know, I am not permitted by the provider to take the drawdown option without getting an IFA involved.

Some providers cater for the DIY market.  Some for the intermediary market.   If you want to DIY, then move the pension to a DIY provider.

It seems that all roads lead to......an IFA.

Not at all.  Most of the regular contributors here do not use an IFA.  However, it boils down to knowledge.   Lets say you had never posted here and followed through on your initial thoughts.  That would have been a costly mistake.    So, DIY, when you don't know what you are doing, is a bad thing and advice would be better.      If you spend the time learning then DIY can be a good thing.

A safe option for the pension pot has not been recommended, and even low risk is not coming across as being recommended as a long term strategy. 

No option for the pot has been discussed really at all as the conversation was focused more on the wrapper and what you can do with it at wrapper level.     There is nowhere near enough info to go into what you can do with the money within the wrapper.

Remember that you can put around 30,000 conventional options into a pension (and even more unconventional options).   Risk exists on all options.  Even cash savings.  Risk is not on/off.  Its a large sliding scale.

Aristotle67

Albermarle said:

A few points here 
1) Pension pot projections tend to be overly pessimistic
2) Probably they are taking into account that your partner was taking out £18K pa . Normally for a pot to be sustainable in case you live to a ripe old age , you would normally be taking a smaller % out of the pot each year.
3) You said it was invested in low risk funds . In fact this is not recommended for long term investing as you need some risk to get the growth to sustain the pot as you withdraw from it.

If you take the three things together , this would explain the rather alarming projections .

I think overall you would get some benefit from taking some professional advice from an IFA. Managing a drawdown pot correctly is not easy, if you have no experience of pensions or investing . In the right hands and with a small bit of luck , it could generate an annual income of around £10k to £12K pa and the £300K could still be there when you die , hopefully a long time in the future .

Thinking about this some more, I think my partner's idea was to take £18,000 per year (i.e. £1500 per month), which I appreciate you say is quite high, but only until she reached state pension age. She would then reduce the amount she took so that this reduced amount, plus the full state pension, would amount to £18,000 per year. This amount would of course have been adjusted according to inflation and cost of living, if required. She would have been 67 in September 2027. Does that sound like a reasonable plan?

If so, I am younger and will not hit state pension age until April 2034, so am unsure if it would be a reasonable plan for myself. 

Thrugelmir

Aristotle67 said:

Albermarle said:

A few points here 
1) Pension pot projections tend to be overly pessimistic
2) Probably they are taking into account that your partner was taking out £18K pa . Normally for a pot to be sustainable in case you live to a ripe old age , you would normally be taking a smaller % out of the pot each year.
3) You said it was invested in low risk funds . In fact this is not recommended for long term investing as you need some risk to get the growth to sustain the pot as you withdraw from it.

If you take the three things together , this would explain the rather alarming projections .

I think overall you would get some benefit from taking some professional advice from an IFA. Managing a drawdown pot correctly is not easy, if you have no experience of pensions or investing . In the right hands and with a small bit of luck , it could generate an annual income of around £10k to £12K pa and the £300K could still be there when you die , hopefully a long time in the future .

Thinking about this some more, I think my partner's idea was to take £18,000 per year (i.e. £1500 per month), which I appreciate you say is quite high, but only until she reached state pension age. She would then reduce the amount she took so that this reduced amount, plus the full state pension, would amount to £18,000 per year. This amount would of course have been adjusted according to inflation and cost of living, if required. She would have been 67 in September 2027. Does that sound like a reasonable plan?

Probably explains why she held the investments in a low risk low growth fund. Capital protection was the goal. Not everyone is comfortable with the risks once they fully comprehend them. Once in retirement there's no opportunity to replenish ones pot. 

Aristotle67

It looks like I am going to be taking the lump sum option.

I have had a financial adviser allocated to me, which is required by the pension provider if I wish to choose a drawdown (which ideally I would like to do) but I am not happy with the procedures that I have to go through with the FA or the fees required for these services. I know precisely what it is that I would like and I can see no value in doing it the way the FA wants to do things. 

This whole experience is not helping with my grief and is stressing me out totally. It really is upsetting me. I can do without it. And I can certainly do without any FA making money at my expense for a service which I do not want. I know that will not go down well with posters on here who will probably think I am crazy, misguided or whatever.......but so be it.

AlanP_2

Aristotle67 said:

It looks like I am going to be taking the lump sum option.

I have had a financial adviser allocated to me, which is required by the pension provider if I wish to choose a drawdown (which ideally I would like to do) but I am not happy with the procedures that I have to go through with the FA or the fees required for these services. I know precisely what it is that I would like and I can see no value in doing it the way the FA wants to do things. 

This whole experience is not helping with my grief and is stressing me out totally. It really is upsetting me. I can do without it. And I can certainly do without any FA making money at my expense for a service which I do not want. I know that will not go down well with posters on here who will probably think I am crazy, misguided or whatever.......but so be it.

I don't think it will annoy anybody on here. It may be a money / pension focused board but there are always people involved as well and this is probably the last thing you need to worry about / deal with at the moment

So, do you have to deal with it now?

Can you not tell the provider, sorry I need to get my head around all this first, I want to DO NOTHING for now? How best to use the pot for your benefit, and to remain true to your partner's approach is important and rushing in to a decision now could be a mistake.

As for the financial advisor allocated to you - who by?  If you need advice you should use your own Independent FA not one foisted on you by the pension provider.

Aristotle67

I don't think it will annoy anybody on here. It may be a money / pension focused board but there are always people involved as well and this is probably the last thing you need to worry about / deal with at the moment

So, do you have to deal with it now?

Can you not tell the provider, sorry I need to get my head around all this first, I want to DO NOTHING for now? How best to use the pot for your benefit, and to remain true to your partner's approach is important and rushing in to a decision now could be a mistake.

As for the financial advisor allocated to you - who by?  If you need advice you should use your own Independent FA not one foisted on you by the pension provider.

Thanks AlanP_2

I would rather like to get this wrapped up now. For one thing I am not doing my own work at the moment and if a drawdown is what I end up with the sooner it begins the better. Whilst I am always wary about rushing into things and making mistakes, the longer I let it continue the longer it will pray on my mind and get me down.

The FA whom I have been speaking with was the one who took over handling my partner's account after the FA who set it up left. He only had the briefest of chats with her and this was when she said she no longer wanted to continue with the ongoing advice.

What gets me is that my partner had to pay between 2-3% of the pot in fees to the original FA in order to set the drawdown and investments up. I have been advised that this now becomes a new retirement account, because it will be in my name, which means another 2-3% of the pot must go to pay a FA. I don't see it that way. I see this as the same point being charged twice when just the name on the retirement account is being changed. I would like the investments my partner set up to continue. I don't want a discussion about my attitude to risk or about alternative products. I just want the drawdown set up exactly as before and I will happily pay an hourly rate for this to be done. But I do not want a new, full-blown, advisory package.

If I cannot have then, then it will be the lump sum, because then I will be in charge of the funds. 

wjr4

If you rush into things, you may make a costly mistake. If you withdraw the money as a lump sum, it will be inside of your estate for inheritance tax purposes. It remains outside of your estate if it is in the pension. 

You shouldn’t be charged again for advice if using the same FA. What have they actually recommended you do? I think you really do need to take some time to grieve, and not rush into things.