Advice on pension charges please

sunnyflower

My husband has been paying into a PP ( a huge company) for over 30 years & is intending to take it when he's 65, which is in a few weeks.
He had a good chat with Pension wise & decided to take his pension in 3 lumps (just over 20k each time)
When he rang the company he was told that this had to go through a financial adviser. The FA phoned him & arranged to visit us ( he wants my financial status as well).
My husband asked how much all this was going to cost, the FA was rather vague but it seems that it will be about 2k.
He doesn't want advice, he's made his mind up, why on earth does he have to pay someone to confirm this to the pension company?
We wonder if it's because taking it out in 3 stages is classed as a drawdown, would that be the case?
If so would he be better off just taking the whole amount out or would he be hamnered for tax?
Any advice, comments welcome !

GrumpyDil

Can you confirm what sort of pension this is as the reference to getting advice suggests that this may have some sort of safeguarded benefits?

Also have the pension company sent your husband details of his options at retirement as that should provide a lot more detail around the type of pension policy he has. 

NlghtOwl

Depending on the type of pension, taking lump sums may attract thousands of tax so this is the time of life where it’s often worth spending a small sum on setting this up correctly to best use tax allowances. Good luck

sandsy

Some older products don't facilitate withdrawals. And the pension provider insists you take advice about moving the contract to a modern product which does permit it. Prudential is often mentioned on this board as an example. You can avoid this by moving it yourself to a provider of your choice that does allow it.

gm0

Advice triggers have nothing to do with drawdown particularly. Or lump sums being preferred to access benefits..

Any product admin company will only talk about their own scheme rules and what they offer now to this member.  Which is just a list of transactions available now, here, for you. Not the full legally allowed list. And not others available around the market on newer products - if you transfer (DC pot for DC drawdown).  This seems unhelpful but that is the playbook they have to follow. They don't tell you if its better or worse to use full transfer away (that's advice).  They don't talk about stuff they don't support - confusing and quickly strays into advice. The product is the product.  Regulated advice is something else.  They talk narrowly about the product.  You can do X or Y here now.  There is no concept of Z, A, B, C all of which may suit you better - via transfer out.  You need to work that out for yourself and initiate the pull to transfer from somewhere else.  You have a whole market of adviser introduced and direct to consumer products to chose from.

Since you have been pointed by the provider to requiring advice to access benefits - in a particular way - let's assume that interaction was competent and accurate to scheme rules at their end (for now).

You may or may not require advice to transfer away.  That is a different question. And they will not have volunteered that answer to you. Not maliciously - they just don't lead the witness at all.  Ask exact question X. Get answer.
Guding you would quickly drift to personalised advice.  They don't do advice.  But will introduce you to someone who sells it.

All providers sign post taking advice as a good and beneficial idea and will strongly and repeatedly recommend that you do it.  Some will nag about it if you want to transfer a DC pot but this is harder. The request to "pull" a pension away is submitted via the new provider like an ISA "pull" moving - so they have limited opportunity for FCA sponsored nagging bar a letter "we have received this request etc." This is not material to stopping you unless there is a transfer restriction in place for a particular "protected rights" reason which adds extra steps.

Insisting that you *have* to have regulated financial advice is the next level up from all the FCA sponsored recommending of it that goes on

For this "mandatory" to truly trigger - it is likely to be either a pension income promise (Defined Benefit) pension with a value over 30k.  Advice is a legal mandate to attempt to "cash out" from DB to a DC pension pot and then to drawdown that money flexibly - rather than taking the lifetime income promise from the DB pension until first death and defined spouse benefits until 2nd death.   There are no waiviers.  No "I know what I want".  Legal requirement you to take advice, and for them to see it done.  If DB and very insistent find an IFA.  Get another quote. Read more.  Learn more about  how difficult this is - and that you can pay for advice - be told it doesn't suit you to do it - and be a few thousand poorer and no further forward.  Almost nobody will take you with negative advice for a DB to DC transfer now.

The other reason for mandatory advice can be a DC pot of money product. But it has unusual "protected rights" features from 30 years ago that trigger a rule for pre-access advice.  

A good example would be an old product which offered a very high "guaranteed minimum annuity rate" from the provider life company - when purchased from this product at the end - not less than x%.  Way out of line with today's market rates.  A now silly promise by them from long ago - which you lose if said annuity is not purchased from this provider. So if lump sums are used via scheme rules, or the pension is transferred away and money exited as drawdown elsewhere.  To prevent financial self harm - this sort of feature can trigger mandatory advice to be taken

There are several other protected rights. Some of which are legally a tangle but not super valuable to you (in most circumstances). You need to know what they are for your product and how they could apply to you.

So go and ask.

The context in which they said "advice is mandatory" matters a lot.  It won't be a specific lie.  It may well be exactly true for them as the provider, perhaps while selling you something new that is only adviser introduced to do the particular thing you asked for by moving product A to product B.   But it may well not be the "whole of market"  truth either. Somebody else may well sell you a similar direct to consumer no advice product - if you transfer the pot to them.

The extent you need your wits about you before talking to pension companies is profoundly depressing.

jamesd

It could be as simple as what gm0 wrote, their own internal policy and products.

The most likely reason for an advice recommendation, not requirement, for a policy this old would be a guaranteed annuity rate. These pay an income for life at rates that can be far higher than current market rates. That'd often make lump sum rather than income taking unwise.

Two approaches you can try, one after the other:

1. Ask them to tell you if it's a legal requirement, and what triggers it, or whether it's merely due to their products or product range restrictions.

2. Tell Hargreaves Lansdown that you want to transfer it. Unless there truly is a legal requirement they will do it, though if there are safeguarded benefits involved they will tell you first so you can make a better informed decision. If no advice is needed this will be free and they may even have a pay you to transfer deal going.

He might be hammered taxwise if he took it all at once. 25% would normally be tax free so on £60k there would be £45k taxable to add to his other income for the year. Might cause some higher rate tax to be due and splitting is the easy solution.

There is one quirk of the system to know about. For the first withdrawal firms have to pretend that the same income will be repeated every month of the year and deduct tax accordingly. It's easy enough to reclaim the excess from HMRC. The first one will trigger a request to HMRC for a proper tax code and one should be issued in six to eight weeks.

Is there any particular reason to wait until age 65? There's no legal need and he could use the money to boost his pension contributions for the year to his gross pay, getting a useful boost. If this is of interest say so, so we can guide you how to avoid breaking various limits by using the small pot rule three times before taking the rest.

You probably know that you can pay £2880 net into a pension until your 75th birthday and have it grossed up to £3600 by pension tax relief. Don't have to be working. Can then withdraw. The potential gain is from £180 to £720 a year depending on how much income tax personal allowance you have unused. If not, ask and one of us can explain more.

sunnyflower

Thanks everyone, my goodness what a complicated process, but you have made it a bit clearer.
(I have an NHS pension, that was so straightforward!)
Yes gm0 it is with Prudential.
He has a defined contribution pension, taken out in 1993.
As there were changes  in 2015 it means that he has to change the policy. 

gm0

Prudential - who it appears only sell an advice introduced alternative product for drawdown.  Not a DIY one. 

So they are are pushing you into an advice pipe that leads to these costs and to their drawdown/lump sum supporting product.   They are baking in the assumption "I want to stay here to access my pension".  Some people do.  It is - just about -  helpful that the option exists.

Customer service are given rules to a "not giving advice" playbook.  If client is on product A and asks for this - then tell them this implies a product switch as it is not supported in product A. Then tell consumer that we offer alternative product B - which does what they want. And then read out a statement that product B requires advice to be taken pre-sale.  All of which will be true at Prudential and for product B.  Messages delivered to regulation - if not helpfully as overall guidance. 

It bakes in the assumption you want to stay at Pru and ignores DIY options to do the same thing widely available elsewhere.  It is true that "if you transact with us then - the following......." and we have nothing to say about anything else.

If not already committed into this transaction. You could transfer, for free (or sometimes a cashback) to a different direct to consumer DC drawdown product provider - any of iWeb, HL, Fidelity, AJ Bell, Vanguard and many more.  Different investment ranges, web facilities, ongoing fees for each.

Good luck

Albermarle

The Prudential charge ( 3% I think) is wrapped up as financial advice, but is in effect just a charge for something that other companies do not charge for.

It is very easy to open a new pension on line and request a transfer in of the existing pension.
When the money arrives you call them and ask to withdraw £20K . There will be some questions but no fee/ small admin fee.

For this amount of money, I would not worry about minor differences in charges and go for good customer service.
If you transfer to either Hargreaves Lansdown or Fidelity they will even give you a cash back at the moment.

Self-Invested Personal Pension (SIPP) - Hargreaves Lansdown (hl.co.uk)
Fidelity International | ISAs, Shares, Funds & Pensions (SIPPs)

dunstonh

Yes gm0 it is with Prudential.

Prudential does not employ advisers.  Their own in-house sales team is a non-advised service but they actually charge more than many advisers for that.  (a link to their terms of business of business was posted some time back and it showed the information only box was ticked but the advice box was not)

Prudential's legacy products do not support drawdown.

Some Prudential plans have safeguarded benefits and the in-house Prudential sales team do not have the regulatory permissions to override safeguarded benefits.

Farside71

The servicing of Prudential legacy pensions is carried out by a 3rd party outsourcer so the handover to the advice side is very process driven.  Some of the legacy Pru pensions do support varying degrees of inflexible ufpls, but it depends on the product and the particular system it is on as to what they can facilitate.