Advice on pension for father

mr_jrt

Hi. My father is not very good at managing complex financial matters, and is also largely broke. The two may be related! It also means an IFA is thus a bit of an expensive luxury. He's also a state pensioner.

Sparing you the ins and outs, he has unexpectedly ended up with two pensions after being tracked down by the providers. One is a vanilla DC pension with NEST and another, much older one from the 1980s. The pots are not by any means large - ~10k in the newer one and ~40k in the old one. He is adamant he wants to use them as drawdown.

To that end, I've suggested he could just consolidate them into a low-cost Vanguard SIPP and drawdown as he wants.

The issue is that the older pot has a GAR on it, so Vanguard won't touch it, and the existing provider doesn't do drawdown. The GAR, as far as I can tell, isn't actually that great, but I've advised him to at least get a quote from the provider for an annuity so he can make an informed decision with actual figures if he wants a 2-3 hundred quid a month for life, or to drawdown as he currently wants.

The issue is that he's not technical in any way, and I live the other end of the country from him, so supporting him through this process is somewhat painful, to say the least. I'm terrified of him getting taken advantage of when he's off googling on his phone and calling places up. It's his decision, but I suspect at best he's going to get charged a small fortune (several percent) of the little he has to basically sign off on getting his old policy transferred to Vanguard, if he's even able to. 

I just don't know what to advise him for the best. I know nothing about financial advisors or how their fees work when you have small pots but are legally required to use them. I just want what's best for him, but some of the IFA fees I've seen for small amounts feel almost punitive (somewhere I saw someone saying they were quoted ~5%) as it's not worth the IFA's time, but I don't know what other option my father has to access his money. What's a reasonable fee to sign off on a transfer of a ~40k pot so I can at least tell if it's a bad deal or not?

I'm not sure what I'm really asking, but can anyone suggest any further avenues I can explore with him?

Linton

If the ~£10K is < £10K your father can simply withdraw the lot at no cost under the "small pots rule".

As you suggest, paying for advice on transferring a £40K pot with protected benefits is probably  not going to be worthwhile for either your father or an IFA.  Perhaps the best bet would be to buy an annuity.  How old is he?  At 70 he could take £10K tax free which would pay for occasional one-offs and the remaining £30K would buy a fixed rate annuity of around £2500/year for the rest of his life (more if he has potentially life-shortening ill health) even without a GAR. So no fees with minimal complications and required knowledge. 

Marcon

Linton said:

If the ~£10K is < £10K your father can simply withdraw the lot at no cost under the "small pots rule".

He could, but given how low his total pension savings are, there's no merit in using the small pots rule as opposed to simply cashing in the smaller pot - but bear in mind OP has said:

mr_jrt said:

Hi. My father is not very good at managing complex financial matters, and is also largely broke.

..... He is adamant he wants to use them as drawdown.

If someone isn't good with money, giving them a lump sum is often not the best idea in town! OP, the NEST pension can be taken roughly in line with your father's preferences, so why try and transfer it: https://www.nestpensions.org.uk/schemeweb/nest/retirement/retirement-options/self-managed.html

squirrelpie

As Linton says, taking the 25% tax free cash from the larger pot and then buying an annuity with the remaining £30K sounds like the best plan to me. He can invest the £10k tax free in an ISA and draw down from there whenever he wants. Annuity rates are good at the moment so it's a sensible choice. If he doesn't need the extra money from the annuity every month, he can save that in the ISA as well. He could set up an automatic transfer from his bank account into the ISA so he doesn't see it in his bank balance if that means he would waste it! Similarly if he cashes the smaller pension under the small pots rule, he can pay that into the ISA and use the ISA as a drawdown account. Do watch out for the limit of putting £20,000 into an ISA each tax year if he did exactly as I suggest!

dunstonh

 He is adamant he wants to use them as drawdown.

If he is not very good at " at managing complex financial matters", why would he give up a GAR to run the more complex drawdown?  Especailly when he is almost broke?

The GAR, as far as I can tell, isn't actually that great

What is it?  The devil is in the detail.

but I suspect at best he's going to get charged a small fortune (several percent) of the little he has to basically sign off on getting his old policy transferred to Vanguard, if he's even able to. 

Overriding a GAR to access the pension flexibly is a high risk transaction.   That means it will be expensive.
And it sounds like drawdown isn't suitable for him (so increases the risk further)

but some of the IFA fees I've seen for small amounts feel almost punitive (somewhere I saw someone saying they were quoted ~5%) as it's not worth the IFA's time, but I don't know what other option my father has to access his money.

Passive blocking by coming out expensive is a common pricing move in many industries.  Rather than say no, they just price themselves out of it.

 What's a reasonable fee to sign off on a transfer of a ~40k pot so I can at least tell if it's a bad deal or not?

5% of £40k doesn't sound at all unreasonable for overriding a safeguarded benefit.   

Do note that using the open market option for an annuity rate that is higher than the GAR (as you wouldn't buy it if its lower) does not require advice.

Albermarle

The issue is that the older pot has a GAR on it, so Vanguard won't touch it, and the existing provider doesn't do drawdown. The GAR, as far as I can tell, isn't actually that great

One of my pension providers will accept pension pots with GAR's without financial advice, but only if they are worth less than £30K. I think that might be a common policy for other providers too. 

mr_jrt

The reason he transferred from the NEST pension was that he told me they were placing strange restrictions on him making withdrawals. Like only being able to take a grand out until June next year. Which feels somewhat arbitrary as that's nowhere near his birthday or the tax year or indeed, any date I'm aware of. And I believe the insisting on the withdrawal all being a mix of tax free and taxable, not just moving the taxable component into the separate pot. I read a few reviews and NEST seemed to come off unfavourably, so I figured I knew Vanguard were cheap and reliable and will let him do what he wants. It's all very difficult as I have to try and interpret secondhand what may have actually happened based upon someone telling me about something they don't fully understand themselves.

mr_jrt

Linton said:

If the ~£10K is < £10K your father can simply withdraw the lot at no cost under the "small pots rule".

As you suggest, paying for advice on transferring a £40K pot with protected benefits is probably  not going to be worthwhile for either your father or an IFA.  Perhaps the best bet would be to buy an annuity.  How old is he?  At 70 he could take £10K tax free which would pay for occasional one-offs and the remaining £30K would buy a fixed rate annuity of around £2500/year for the rest of his life (more if he has potentially life-shortening ill health) even without a GAR. So no fees with minimal complications and required knowledge. 

He's 67. The table provided worked out as about 5.9% (£57.99 pa per £1,000), but that illustration had a few luxury options, like a second beneficiary, a 5 year guarantee, and didn't factor in his smoking, etc. This is why I've heavily advised him to speak to the provider to get an actual proper quote.

squirrelpie

"This is why I've heavily advised him to speak to the provider to get an actual proper quote."

You could go to MoneyHelper and get some indicative quotes for him, including his smoking, as a comparison against whatever the guaranteed rate is. https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities

They also have a page explaining guaranteed annuity rates https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/guaranteed-annuity-rates

mr_jrt

Minor update, Vanguard sent him a message saying they've rejected the transfer of the smaller pot as "the provider isn't accepting existing drawdown requests", or wording to that effect. Which feels somewhat bizarre given Vanguard state categorically that they accept transfers that are already in drawdown, so I suspect the issue is on the NEST end. Getting my father to call and clarify what that message actually means can be tomorrow's battle.