Costs when setting up pension with an independent financial advisor (IFA)

Huffnagel

Hello, and feel free to point me to another thread if this was discussed elsewhere.

My wife earns her money as self-employed and we want to set up a pension for her through an independent advisor, so she'd get help in case anything happens in the future.

One thing struck me though, this IFA company would transfer all her past workplace pensions into a new one, which is fine. But they also said they can just take their £500 fee out of the pension pot on transfer. I thought you legally cannot withdraw anything from pension funds, you're only allowed to transfer one into another. Is it some kind of legal loophole where they can state that it is the cost of transfer or something?

The other thing: I asked if this is a one-off fee and they said yes - but can we still expect some "management fee" or "administration fee" over the years? I will go back and ask before deciding anything as their brochure is very minimalistic.

Dazed_and_C0nfused

Why isn't she doing the transfer herself?

An IFA might be useful looking at the bigger picture and investment choices going forward, the transfer is usually relatively straightforward.

Huffnagel

I've done it myself with my workplace pensions, but it's not about the transfer, it's about setting up a self-employed pension pot which I have no experience with. The providers I looked at all pointed towards an IFA as they don't deal directly with individual clients.

I prefer an advisor anyway, because I want to make sure my wife's got help managing/accessing the private pension later in life even if I'm not around. I don't mind a one-off fee now if that means fewer issues in the future. It just seems strange that they can take their fee out of a pension pot, which technically can't be touched, only transferred.

Dazed_and_C0nfused

Huffnagel said:

I've done it myself with my workplace pensions, but it's not about the transfer, it's about setting up a self-employed pension pot which I have no experience with. The providers I looked at all pointed towards an IFA as they don't deal directly with individual clients.

I prefer an advisor anyway, because I want to make sure my wife's got help managing/accessing the private pension later in life even if I'm not around. I don't mind a one-off fee now if that means fewer issues in the future. It just seems strange that they can take their fee out of a pension pot, which technically can't be touched, only transferred.

What is a "self employed pension pot"?

I suspect that's something you've invented and what you really mean is she is starting a standard personal pension or SIPP using the relief at source method.

artyboy

Dazed_and_C0nfused said:

Huffnagel said:

I've done it myself with my workplace pensions, but it's not about the transfer, it's about setting up a self-employed pension pot which I have no experience with. The providers I looked at all pointed towards an IFA as they don't deal directly with individual clients.

I prefer an advisor anyway, because I want to make sure my wife's got help managing/accessing the private pension later in life even if I'm not around. I don't mind a one-off fee now if that means fewer issues in the future. It just seems strange that they can take their fee out of a pension pot, which technically can't be touched, only transferred.

What is a "self employed pension pot"?

I suspect that's something you've invented and what you really mean is she is starting a standard personal pension or SIPP using the relief at source method.

Or possibly the OPs wife runs a company that the pension contributions will be paid though (and so no relief comes into it) - but even then that is entirely possible to DIY via a SIPP.

Curious as to what actual value the OP is looking for from an IFA here.

Huffnagel

Apologies, I have no idea how self-employed pensions work, so I checked a few pension providers but they all want you to go through an advisor, they don't let you just sign up.

As to my initial question, how can an IFA say that they can just take their fee out of a pension fund?
To my knowledge, a pension can only be used (transferred etc.) as a pension, you cannot just withdraw the money, so it seems dodgy.

Curious as to what actual value the OP is looking for from an IFA here.

If I'm not around by that time, my wife will still have help from this company of advisors, especially from abroad (we don't plan being in this country forever). Plus anything can happen in the long term where you are left vulnerable, and professional help might come useful. It's an aging population, legislation can change throughout the decades for the worse, and you might need to act quickly, e.g. a threat can come around where private pensions will be nationalised or such. (Sorry, politicians still score much lower on my reliability scale than financial experts.)

Marcon

Huffnagel said:

Apologies, I have no idea how self-employed pensions work, so I checked a few pension providers but they all want you to go through an advisor, they don't let you just sign up.

As to my initial question, how can an IFA say that they can just take their fee out of a pension fund?
To my knowledge, a pension can only be used (transferred etc.) as a pension, you cannot just withdraw the money, so it seems dodgy.

• The pensions advice allowance — this allows people in defined contribution (DC) pension schemes to withdraw up to £500 tax free from their pension pot to pay for retirement advice. The £500 allowance is per tax year, but you can do it for up to three separate tax years. Check that your pension provider will let you use the allowance though, as not all of them do.

Source: https://www.moneyhelper.org.uk/en/getting-help-and-advice/financial-advisers/guide-to-financial-adviser-fees


Also see https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics and scroll down to the section headed 'pensions for the self employed'.

Unless she's going to be contributing/transferring very substantial sums of money, there's unlikely to be much an IFA can do to add value at this stage. There will be ongoing charges and fees from the pension provider, and if she signs up for ongoing advice, from the adviser. It's never going to be a case of paying £500 now and that's it for all time.

Albermarle

I have no idea how self-employed pensions work, so I checked a few pension providers but they all want you to go through an advisor, they don't let you just sign up.

Normally a self employed person would just open a normal personal pension/SIPP and contribute to that.
There are numerous providers of these pensions where you can open the pension yourself without going through an advisor. Takes just a few minutes online normally.
What you might find is they advise you to talk to an advisor, but it is not actually something you have to do. They say that just to cover themselves.

I am not sure about the withdrawing the fee from the pension, it does sound a bit odd.
Also £500 is very cheap for an IFA to consolidate pensions, so makes you wonder....

Marcon

Albermarle said:

I am not sure about the withdrawing the fee from the pension, it does sound a bit odd.
Also £500 is very cheap for an IFA to consolidate pensions, so makes you wonder....

See my post above re the pensions advice allowance - which also probably explains why the charge (or at least one charge!) is going to be £500.

wjr4

£500 sounds very cheap, how did you find the company? Adviser charges can be taken from the pension of the advice relates to pension advice, whether £500 or £5000. It’s often more tax efficient for it to happen that way as well. 

dunstonh

I thought you legally cannot withdraw anything from pension funds, you're only allowed to transfer one into another.

The pension holder isn't taking anything out of the pension.    Fees for the retail and servicing of pensions can be collected within the pension just as they can with other tax wrappers.

The other thing: I asked if this is a one-off fee and they said yes - but can we still expect some "management fee" or "administration fee" over the years? I will go back and ask before deciding anything as their brochure is very minimalistic.

IFAs can be employed on transactional (one off) basis or ongoing.

Are you sure its an IFA?   The reference to brochure is unusual for most IFAs as the majority are small local firms of 1-5 advisers who print things on their office printer from a PDF.

• The pensions advice allowance — this allows people in defined contribution (DC) pension schemes to withdraw up to £500 tax free from their pension pot to pay for retirement advice. The £500 allowance is per tax year, but you can do it for up to three separate tax years. Check that your pension provider will let you use the allowance though, as not all of them do.

Source: https://www.moneyhelper.org.uk/en/getting-help-and-advice/financial-advisers/guide-to-financial-adviser-fees

Hardly any provider uses that allowance.   I can only think of one and they operate a closed book with legacy pensions which was its intention rather than for use with modern pensions which facilitate adviser charging.  i.e. if you hold a legacy plan set up in the old pre RDR days then an IFA could not take a commission post RDR.   So, this £500 allowed legacy plans to facilitate an adviser charge for simple advice areas.    However, the take up of providers offering it was so poor that it has never been updated and I wouldn't be surprised if it vanishes in a future pensions act.

Post RDR plans facilitate adviser charging so there isn't any need for this to exist on new business plans.