What to expect from an IFA?

GenX0212

So, me and my wife are thinking of retiring fairly soon and I have spent quite some time building a detailed model/plan to see what's possible.

As a quick summary:

Me:

• Age 55
• A deferred DB pension available from age 55 approx £14k a year
• A current workplace DC pension current value > £400k, low costs ~0.25%, flexible options, no drawdown fees, performing well.
• A couple of other private pensions, total about £100k. Mid costs ~0.6 to 0.8 %
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• A deferred DB pension available from age 55 approx £4K a year
• A small robopension pot of about £18k. 0.8% costs
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56 with a Comfortable living standard (based on last months PLSA numbers) until at least age 75 and Moderate (or better) thereafter. We expect to need less as we become older.

I have modelled 3% inflation and 2% growth and the pot doesn't run out until after 80.
With 3% inflation and 0% growth then the pot would run out around 72 but we will still have a guaranteed minimum of a Moderate living standard at all times.

If I die before 67 then my wife would have a £12k pension (hers plus widows) plus the pots; £22k after 67 plus the pots. 
If there is a market crash before we are 67 then we have a combined guaranteed pension of £18k plus whatever is left from the pots.
With our DB pensions and State Pensions we would have a guaranteed Moderate living standard when we reach 67 regardless of what's left in the pot.

The plan draws the money down in a tax efficient way, me staying below the 40% tax bracket and my wife only paying a small amount of tax when she starts drawing her State pension.
I'm aware of the option for me to transfer £2.8k to her each year before 67 in order for her to get £3.6k. I'm also aware of the Married persons tax allowance to gain a few hundred pound more each year.

Clearly we aren't going to attempt to transfer the DB pensions and unless something changes drastically then I see no reason to move away from my current DC scheme although I would likely reduce the investment risk profile. I would be happy with the return of 2% growth and have no interest in investing in any high risk strategies.

If an IFA is charging 1-2% of my pot for advice (£5k - £10k) am I likely to get a real return on the money or am I likely to get a 'yeah all looks ok' response for the money?  I have no objection whatsoever to paying the £10k if I am likely to get some value out of it.

Would love to hear others experience of using an IFA and the value they got from doing so, equally from anyone who didn't then do you have any regrets?

dunstonh

I have modelled 3% inflation and 2% growth and the pot doesn't run out until after 80.

Average UK inflation is around 4.9% over the long term.   Until last year, we have been lucky by having a long period of low inflation.   With global strife (back to how it used to be), the world is back to being uncertain again, and energy crises are more likely.   That, in turn, will drive inflation.

If an IFA is charging 1-2% of my pot for advice (£5k - £10k) am I likely to get a real return on the money or am I likely to get a 'yeah all looks ok' response for the money?
 I have no objection whatsoever to paying the £10k if I am likely to get some value out of it.

First of all, that fee is too high.    In monetary terms, £2500-£3000 should be the ballpark as the initial fee.

you are not going to get value of out of £10k and there is no reason to pay £10k.  Not unless you are going to a tied sales force or greedy !!!!!!.

GenX0212

dunstonh said:

I have modelled 3% inflation and 2% growth and the pot doesn't run out until after 80.

Average UK inflation is around 4.9% over the long term.   Until last year, we have been lucky by having a long period of low inflation.   With global strife (back to how it used to be), the world is back to being uncertain again, and energy crises are more likely.   That, in turn, will drive inflation.

Modelling with 4.9% inflation and 6.9% then the pot lasts to 77 so still meets the objective. 4.9% inflation and no growth then the pot runs out at 73 so just a little earlier than desired. 

Thanks for the info re fees, everything I had read so far leant towards 1-2%

GeoffTF

Here are some historical inflation numbers from the ONS:

https://www.ons.gov.uk/economy/inflationandpriceindices/articles/consumerpriceinflationhistoricalestimatesandrecenttrendsuk/1950to2022

"The average 12-month growth rate of the Consumer Prices Index including owner occupiers’ housing costs (CPIH) between 1950 and 1988 was 5.8%; considerably higher than the average of 2.6% between 1989 and April 2022."

Whether the bad old days of my youth will return I do not know. About 20% of my portfolio is index linked. I was wondering whether that is too much this morning. Perhaps it is not. I am going to allow those investments to mature anyway.

Aegis

GenX0212 said:

dunstonh said:

I have modelled 3% inflation and 2% growth and the pot doesn't run out until after 80.

Average UK inflation is around 4.9% over the long term.   Until last year, we have been lucky by having a long period of low inflation.   With global strife (back to how it used to be), the world is back to being uncertain again, and energy crises are more likely.   That, in turn, will drive inflation.

Modelling with 4.9% inflation and 6.9% then the pot lasts to 77 so still meets the objective. 4.9% inflation and no growth then the pot runs out at 73 so just a little earlier than desired. 

Thanks for the info re fees, everything I had read so far leant towards 1-2%

Fees are definitely a murky area, with the traditional 3% initial and 0.5% ongoing seemingly being replaced by 1% initial and 1% ongoing. Personally I don't like either approach and instead go for a fixed-fee approach as standard. I haven't yet had anyone come to me and say "Ian, I like what you do, but could you charge me a percentage fee instead?"

dunstonh

Thanks for the info re fees, everything I had read so far leant towards 1-2%

Increasingly common are percentages with caps and collars on fees to prevent obscene fees at the upper end.  And/or tiering in the fees.

Firms have different business models. A firm focusing on £1m plus clients will likely be expensive for smaller value clients.  Whereas firms that focus on smaller value clients may be damned expensive for larger investors.       Not everyone has adjusted to caps/collars and tiering yet.

There will still be the greedy ones though.

eskbanker

GenX0212 said:

Me:

• Age 55
• [...]
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• [...]
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56...

Assuming that you're basing your expectations on actual personal forecasts obtained from gov.uk, have you both already reached maximum entitlement based on contributions to date or do your plans reflect the number of further years needed?

GenX0212

eskbanker said:

GenX0212 said:

Me:

• Age 55
• [...]
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• [...]
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56...

Assuming that you're basing your expectations on actual personal forecasts obtained from gov.uk, have you both already reached maximum entitlement based on contributions to date or do your plans reflect the number of further years needed?

We already have 38 and 37 years contributions so the full SP is already locked in.

boingy

GenX0212 said:

So, me and my wife are thinking of retiring fairly soon and I have spent quite some time building a detailed model/plan to see what's possible.

As a quick summary:

Me:

• Age 55
• A deferred DB pension available from age 55 approx £14k a year
• A current workplace DC pension current value > £400k, low costs ~0.25%, flexible options, no drawdown fees, performing well.
• A couple of other private pensions, total about £100k. Mid costs ~0.6 to 0.8 %
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• A deferred DB pension available from age 55 approx £4K a year
• A small robopension pot of about £18k. 0.8% costs
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56 with a Comfortable living standard (based on last months PLSA numbers) until at least age 75 and Moderate (or better) thereafter. We expect to need less as we become older.

I have modelled 3% inflation and 2% growth and the pot doesn't run out until after 80.
With 3% inflation and 0% growth then the pot would run out around 72 but we will still have a guaranteed minimum of a Moderate living standard at all times.

If I die before 67 then my wife would have a £12k pension (hers plus widows) plus the pots; £22k after 67 plus the pots. 
If there is a market crash before we are 67 then we have a combined guaranteed pension of £18k plus whatever is left from the pots.
With our DB pensions and State Pensions we would have a guaranteed Moderate living standard when we reach 67 regardless of what's left in the pot.

The plan draws the money down in a tax efficient way, me staying below the 40% tax bracket and my wife only paying a small amount of tax when she starts drawing her State pension.
I'm aware of the option for me to transfer £2.8k to her each year before 67 in order for her to get £3.6k. I'm also aware of the Married persons tax allowance to gain a few hundred pound more each year.

Clearly we aren't going to attempt to transfer the DB pensions and unless something changes drastically then I see no reason to move away from my current DC scheme although I would likely reduce the investment risk profile. I would be happy with the return of 2% growth and have no interest in investing in any high risk strategies.

If an IFA is charging 1-2% of my pot for advice (£5k - £10k) am I likely to get a real return on the money or am I likely to get a 'yeah all looks ok' response for the money?  I have no objection whatsoever to paying the £10k if I am likely to get some value out of it.

Would love to hear others experience of using an IFA and the value they got from doing so, equally from anyone who didn't then do you have any regrets?

I think you are probably clued up enough to not need an IFA. If you wanted to add some flesh to the bones of your plan and put it on here you'll be sure to get some wise words, and possible a few daft ones. You could always decide on an IFA after that if you wanted.

Notepad_Phil

GenX0212 said:

eskbanker said:

GenX0212 said:

Me:

• Age 55
• [...]
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• [...]
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56...

Assuming that you're basing your expectations on actual personal forecasts obtained from gov.uk, have you both already reached maximum entitlement based on contributions to date or do your plans reflect the number of further years needed?

We already have 38 and 37 years contributions so the full SP is already locked in.

Unfortunately you are under transitional rules so it doesn't just depend on the number of years contributed. Some people have reported a full pension after 29 years whilst others are into 40+ years before they have a full pension. The only way to be sure is to get an official pension forecast and check it carefully to see what you have got.

GenX0212

Notepad_Phil said:

GenX0212 said:

eskbanker said:

GenX0212 said:

Me:

• Age 55
• [...]
• A Full State Pension expected. 38 full years so far.

Her:

• Age 55
• [...]
• A Full State Pension expected. 37 full years so far.

The aim is to retire from 55/56...

Assuming that you're basing your expectations on actual personal forecasts obtained from gov.uk, have you both already reached maximum entitlement based on contributions to date or do your plans reflect the number of further years needed?

We already have 38 and 37 years contributions so the full SP is already locked in.

Unfortunately you are under transitional rules so it doesn't just depend on the number of years contributed. Some people have reported a full pension after 29 years whilst others are into 40+ years before they have a full pension. The only way to be sure is to get an official pension forecast and check it carefully to see what you have got.

 Here it is:

You can get your State Pension on xxxxxxxx. 2036

Your forecast is £203.85 a week, £886.38 a month, £10,636.60 a year

Your forecast

• is not a guarantee and is based on the current law
• is based on your National Insurance record up to 5 April 2023
• does not include any increase due to inflation

£203.85 is the most you can get

You cannot improve your forecast any more.

Your National Insurance record

You have:

• 38 years of full contributions
• 12 years to contribute before 5 April 2035
• 1 year when you did not contribute enough