Pension choices

keith969

I've been putting it off now for a couple of years, but feel now is the time to retire and draw a pension; I'll be 68 in September.
I've got about £675k in a small number of pots and my FA has presented me with 3 choices:
1) Buy an annuity. He says for around 600k he can get me an annuity of £43.5k non rpi linked, or lower (~29k)  if I want one rpi linked.
2) Drawdown. An income of £35k/annum with 3% growth should be possible to last me till 90.
3) A mixture of the two, half going on an annuitythat would bring in £21.5k and the rest available for drawdown as necessary.

He's suggesting the third option is the best way, I'm just not clear if it is or not. I have no dependents to worry about so all 3 are valid options, I like the security of #1 and do worry a little that drawdown may not last long enough. I also don't like the idea that there is a constant administration fee - my largest pension pot with AJ Bell/Brewin Dolphon has fees of about £11k a year on current value of £590k which seems high to me. I should add on top of this I have the state pension, which I deferred for 2 years.

What would you do, and why?

Dazed_and_C0nfused

Why a FA rather than an IFA?

MallyGirl

with that size of pot you ought to be on a fixed fee platform - or is much of that going to the FA?

keith969

Dazed_and_C0nfused said:

Why a FA rather than an IFA?

Sorry, they are independent. 

keith969

MallyGirl said:

with that size of pot you ought to be on a fixed fee platform - or is much of that going to the FA?

Can you explain what you mean, I'm afraid my knowledge of these terms is limited! From the info I have from Brewin Dolphin, fees and charges amounted to 2.02% in 2023, of which 0.71% were BD fees, 0.49% were 'intermediary charges', 0.81% were 'underlying costs of external funds in your portfolio'.

tacpot12

You could reduce your fees to about 0.7% using a low cost platform such as AJ Bell. (This is what I pay). 

Using option 3, but then moving your BD investments to a low cost platform would increase the amount available for drawddown, while securing a good amount of income via the annuity. I would say that you really want the RPI-linked annuity, even though there is clearly a great cost to doing so. Only if you knew you were not likely to live very long would a non-inflation protected annuity make sense.

MallyGirl

keith969 said:

MallyGirl said:

with that size of pot you ought to be on a fixed fee platform - or is much of that going to the FA?

Can you explain what you mean, I'm afraid my knowledge of these terms is limited! From the info I have from Brewin Dolphin, fees and charges amounted to 2.02% in 2023, of which 0.71% were BD fees, 0.49% were 'intermediary charges', 0.81% were 'underlying costs of external funds in your portfolio'.

I use Interactive Investor and the monthly charges are £21.99 which covers a SIPP, an ISA and a general investment account - regardless of the value in each - so £263.88 per year. I use Acc funds so the fund costs are hidden within the price but none are as high as 0.81%. I DIY so no advisor fees.

FIREDreamer

MallyGirl said:

keith969 said:

MallyGirl said:

with that size of pot you ought to be on a fixed fee platform - or is much of that going to the FA?

Can you explain what you mean, I'm afraid my knowledge of these terms is limited! From the info I have from Brewin Dolphin, fees and charges amounted to 2.02% in 2023, of which 0.71% were BD fees, 0.49% were 'intermediary charges', 0.81% were 'underlying costs of external funds in your portfolio'.

I use Interactive Investor and the monthly charges are £21.99 which covers a SIPP, an ISA and a general investment account - regardless of the value in each - so £263.88 per year. I use Acc funds so the fund costs are hidden within the price but none are as high as 0.81%. I DIY so no advisor fees.

How are the charges apportioned across each account - is it pro rata based on fund value or all from pension or whatever?

MallyGirl

I pay the charges by DD - they aren't taken from the accounts. I don't use the GA account - it just comes as a bundle.

dunstonh

 also don't like the idea that there is a constant administration fee - my largest pension pot with AJ Bell/Brewin Dolphon has fees of about £11k a year on current value of £590k which seems high to me.

Cash savings probably has a similar charge.  Annuities will have a similar charge.   The difference is explicit vs implicit.  (the margin decrease as rates lower and increases as rates are higher)

You have one of the most expensive DFMs and fully active portfolio.  Compare that to a passive portfolio with an IFA using the dominant charge. i.e.. platform 0.15%, IFA 0.50%,  funds 0.18 = 0.83%    

 From the info I have from Brewin Dolphin, fees and charges amounted to 2.02% in 2023, of which 0.71% were BD fees, 0.49% were 'intermediary charges', 0.81% were 'underlying costs of external funds in your portfolio'.

They are not the charges.  That will be from the cost and charges disclosure using your 2023 charges paid vs a snapshot valuation date.    It's likely your IFA charge is 0.5% and not 0.49%.  The cost and charges disclosures are good when detailing the monetary amount but the percentage figure is inaccurate.  its a known flaw.

The IFA charge is exactly what you expect.  However, BD is damned expensive.   IFAs are required to act on instructions from you.  FAs don't have to.   So, you can instruct your IFA that you are cost-conscious and want to use index trackers and low-cost options.   An IFA would have to act on that.  An FA does not (as they can only offer what they have available.  Whereas an IFA is whole of market).

Marcon

MallyGirl said:

I pay the charges by DD - they aren't taken from the accounts. I don't use the GA account - it just comes as a bundle.

If you can pay from within the pension scheme, you'd be paying with tax-relieved cash. Unless you are already paying maximum contributions, you could always pay in a bit more to 'top up' in respect of the charges.