IFA and my 25% tax free lump sum

Dukes_of_hazard

I have recently asked my IFA to arrange the payment of the 25% tax free lump sum from my DC pension, which I would like to take to pay off some debts including my mortgage. 
They said it was not as simple as that and that they would need to justify it. They have now asked me for lots of info about my financial circumstances. 
Is this normal practice ?
I guess they need to cover themselves and maybe money laundering regulations ?

xylophone

They said it was not as simple as that and that they would need to justify it.

The IFA needs to justify your choosing to take your PCLS?

Justify it to whom?

dunstonh

They said it was not as simple as that and that they would need to justify it. They have now asked me for lots of info about my financial circumstances. 
Is this normal practice ?

yes it is.   An IFA cannot just key the withdrawal.  The FCA would crucify them.

I guess they need to cover themselves and maybe money laundering regulations ?

Nothing to do with money laundering.  

If you had £200k in a pension and £200k in an ISA then keying a withdrawal from the ISA requires no paperwork or justification (although if it was unexpected the IFA would often ask questions).   However, if you want a withdrawal from the pension, you can insert about 4-6 hours work creating a file with dozens of pdfs with over 1000 pages between them.

Its all about fear from the regulator that people will erode their pensions and then pile in complaints that they were not told their pension was going to be insufficient or run out of money.

I have recently asked my IFA to arrange the payment of the 25% tax free lump sum from my DC pension, which I would like to take to pay off some debts including my mortgage. 

That is generally not considered a good use of the pension commencement lump sum for many people.   So, the IFA will be expected to model that and tell you whether it is or isnt.

westv

So much for pension "freedoms".

artyboy

With great advice comes great responsibility  

leosayer

Taking tax free cash from a pension is an irreversible transaction and there are circumstances in which it would be a bad idea.  

I would have expected your IFA to have known about your debts and have already agreed a plan with you about how to pay those off which may or may not have involved taking tax free cash. It sounds like they are playing catchup now.

eastcorkram

Why involve an IFA in this at all? If you want to take the TFLS, just take it. 

wjr4

leosayer said:

Taking tax free cash from a pension is an irreversible transaction and there are circumstances in which it would be a bad idea.  

I would have expected your IFA to have known about your debts and have already agreed a plan with you about how to pay those off which may or may not have involved taking tax free cash. It sounds like they are playing catchup now.

This is the difference between financial advisers and financial planners. Although some financial advisers say they plan when they don’t! 

leosayer

wjr4 said:

leosayer said:

Taking tax free cash from a pension is an irreversible transaction and there are circumstances in which it would be a bad idea.  

I would have expected your IFA to have known about your debts and have already agreed a plan with you about how to pay those off which may or may not have involved taking tax free cash. It sounds like they are playing catchup now.

This is the difference between financial advisers and financial planners. Although some financial advisers say they plan when they don’t! 

Not sure I really appreciate the difference but I would have expected an IFA to have factored in something as material as a mortgage .

dunstonh

I would have expected your IFA to have known about your debts and have already agreed a plan with you about how to pay those off which may or may not have involved taking tax free cash. It sounds like they are playing catchup now.

Unless the IFA was not employed on ongoing servicing basis.  Or the IFA was not previously in control of retirement planning.   i.e. the OP had a workplace pension and didn't use the IFA for full planning but focused on certain areas.

Not sure I really appreciate the difference but I would have expected an IFA to have factored in something as material as a mortgage .

If a servicing client, then yes, they would be expected to know about it.   However, the OP may have just sprung this on the IFA.    Often, you have an overall plan laid out, but then the person changes their mind or throws a new idea into the ring.     We also don't know if this DC pension is under the control of the IFA or if it's a workplace pension or legacy plan.

The FCA recently carried out a thematic review into retirement planning.    It didn't turn out too bad as thematic reviews go but it set out what it expected.  It also created the riaat.   A spreadsheet to review a client file on retirement advice.   You can download it here so you can see the sort of thing the FCA expects the adviser to have done:  https://www.fca.org.uk/firms/retirement-income-advice-assessment-tool-riaat?trk=public_post_comment-text

Most of the stuff in the template will be known to the IFA if it is an ongoing servicing client.  It would just need routine updating.   However, if it's a transactional client, they may not do it as it could be years out of date or never requested as part of focused transaction.  It's unlikely an IFA would have modelling in place for a transactional client.

LHW99

Once upon a time there were "pension mortgages", which I seem to remember were interest only, with the principal to be paid back from the TFLS of the pension in due course.

I assume if there are any of those left, then they shouldn't trigger FCA Issues? ...or would they these days?