Drawdown pension advice

samspain_2

Not qite sure which thread is best suited to my queries, could somebody point me in the right direction?
My husband is about to retire and we have decided to set up a drawdown pension with the money he has accrued. We have seen an IFA but the charges he is proposing seems to take a lot off the amount we can drawdown so are hoping to set it up and run it ourselves. Is there any advice available on how to go about this, factsheets etc. or is there a way of employing a financial advisor just to help us set it up and then we can administrate it. Will be grateful for any suggestions.

EdInvestor

How much do you know about investment? What is your pension fund invested in now, and have you been managing that over the years?

That's the main challenge of DIY drawdown. Setting it up and running it is quite simple .

There are several recommended low cost online SIPPs for drawdown.

https://www.sippdeal.co.uk
https://www.h-l.co.uk
https://www.alliancetrust.co.uk


The best one depends a lot on how you want to invest the money.

You are right to look at ways of reducing charges, as high charges make drawdown more risky.You also need to study "asset allocation" - a method of investment in a mix of different asset classes which lowers risk.

Does your pension fund have any "protected rights" money in it?

dunstonh

or is there a way of employing a financial advisor just to help us set it up and then we can administrate it.

That option is available and quite popular. Its cheaper than full advice usually as well. Often it can be no different to the SIPP providers that Ed has mentioned above depending on fund value.

Things important to consider are risk profile, asset allocation. Charges dont actually make a lot of difference and are often not much more than DIY. For example, the annual managment charges are usually the same. Its just the initial charges that differ. The amount of the initial charge will often be based on the amount being invested. Larger amounts have more scope for discounting than small amounts.

EdInvestor

Charges can be drastically reduced by investing directly in shares, gilts and cash and using investment trusts instead of unit trusts for overseas shares, property etc.All of these are available in SIPP drawdowns but not in insurance company drawdowns.

dunstonh

All of these are available in SIPP drawdowns but not in insurance company drawdowns.

There is an insured contract that allows drawdown with direct investments. Transact. Although the majority of people are using funds so any fund based solution could be considered.

samspain_2

To answer your questions
The total fund is £500,000 at present in various places, some with Zurich some with other companies therefore invested in various things such as commercial property, we usually discuss the amounts of investment and where we want them with our Zurich agent over the years. We also have another source of income £100,000 in equity isas.
The main fund is split £400/100/thousands and the up-front costs would be 1,8% of the 400,000 and 2% of the 100,000 including of the 25% tax-free lump sum amount we hope to take out, plus VAT then on going costs of 1.5% annual management costs on the remaining £400,000 (1/2% going back to the financial advisor ) which we reckon to be about £8000 per year in charges. The suggestion was that we should then take about 5%- in drawdown from the fund therefore no more than we would get by putting the money in a decent bank account (if that option were available to us) or an annuity would at least be a guaranteed income.
We understand that the financial advisors per cent on-going fees does not seem excessive if he were able to use a company that didn,t have 1 per cent annual management charges.
Hope this clarifies the situation

dunstonh

VAT wouldnt be chargeable on the initial charge as it is handled within the investment. Even if you paid it by cheque instead it still isnt chargeable. VAT is only charged on advice if you do not purchase a product. If you purchase a product it is exempt from VAT.

then on going costs of 1.5% annual management costs on the remaining £400,000 (1/2% going back to the financial advisor ) which we reckon to be about £8000 per year in charges.

1.5% is the typical annual management charge even if you go DIY. 1/2 does not go to the adviser. Trail commission is typically 0.5%.

So, the ongoing charges appear to be the same as doing it yourself. Its only the initial charges that differ. 1.8-2% is not bad but for the fund value in question, you ought to be able to get a better deal than that and you certainly shouldnt be paying VAT on that. With that fund value I would be looking for 0.5-1% as tops as initial commision. If it is an IFA they should offer a fee option which would will be cheaper than 1.8-2% commission.

Can you clarify if it is a Zurich agent giving the advice or an IFA? What provider and product is the IFA proposing you use for the drawdown? Is there protected rights held within the pension?

meester

samspain wrote: »

To answer your questions
The total fund is £500,000 at present in various places, some with Zurich some with other companies therefore invested in various things such as commercial property, we usually discuss the amounts of investment and where we want them with our Zurich agent over the years. We also have another source of income £100,000 in equity isas.
The main fund is split £400/100/thousands and the up-front costs would be 1,8% of the 400,000 and 2% of the 100,000 including of the 25% tax-free lump sum amount we hope to take out, plus VAT then on going costs of 1.5% annual management costs on the remaining £400,000 (1/2% going back to the financial advisor ) which we reckon to be about £8000 per year in charges. The suggestion was that we should then take about 5%- in drawdown from the fund therefore no more than we would get by putting the money in a decent bank account (if that option were available to us) or an annuity would at least be a guaranteed income.
We understand that the financial advisors per cent on-going fees does not seem excessive if he were able to use a company that didn,t have 1 per cent annual management charges.
Hope this clarifies the situation

Surely it depends how the money is invested?

And why would you pay charges in money that is not being invested (the 25%)

Fee transparency would probably be better for you.

You are looking at paying £2,500/year + capital growth of trail commission. I'm not sure what an hourly rate for an IFA is - I guess £100-£120/hour. The advisor is going to be looking at your money once a year (if you're lucky).

To me that's a crazy level of fees when you don't even know what you're paying for. You need to ask for that commission to be rebated. The advisor should be happy to charge on a time basis, £1k seems more than enough to do a proper review.

Again, for the upfront stuff, £9,200, is a huge amount of money. It sounds to me like they are proposing whacking it into a few OEICs and UTs from the 1.5% charge (no trackers, no ETFs/ETCs, no bond funds), it's not a very sophisticated level of service for that amoumt of money.

For that level of investment you should be able to getting access to specialist products, lower fees, things that I can't get myself with my current £14,000 pension fund, because to pay that money and get nothing more is madness.

There will certainly be better companies around that offer a more appropriate level of service for that amount of money, or alternatively you might well feel it worth your while to spend 100 hours of your own time doing your own research and learning to manage it yourself.

5% btw seems unnecessarily cautious. I would personally be strongly tempted to take the maximum, you are after all going to die (or more pertinently end up buying an annuity), and 5% shouldn't make much impact on the capital.

dunstonh

You are looking at paying £2,500/year + capital growth of trail commission. I'm not sure what an hourly rate for an IFA is - I guess £100-£120/hour. The advisor is going to be looking at your money once a year (if you're lucky).

On £400k you would look at once or twice diarised but obviously things can happen in between which may need ad hoc reviews. More frequent portfolio reports could be diarised. However, you also need to be wary of micromanaging it.

To me that's a crazy level of fees when you don't even know what you're paying for. You need to ask for that commission to be rebated. The advisor should be happy to charge on a time basis, £1k seems more than enough to do a proper review.

Why?

You dont see the execution only providers rebating when there is no advice a little or no FOS protection. So, why should an adviser who will carry a lifetime of liability on this have to rebate trail? The only reason I would rebate some of the trail is if it is execution only. I certainly wouldnt on advice.

Again, for the upfront stuff, £9,200, is a huge amount of money. It sounds to me like they are proposing whacking it into a few OEICs and UTs from the 1.5% charge (no trackers, no ETFs/ETCs, no bond funds), it's not a very sophisticated level of service for that amoumt of money.

There has been no comments made to suggest what sort of portfolio is built. Some of the things you mention are not within the remit of most advisers as they are quoted stocks. You would need a stockbroker on board.

For that level of investment you should be able to getting access to specialist products, lower fees, things that I can't get myself with my current £14,000 pension fund, because to pay that money and get nothing more is madness.

That may be the case. Again we dont know. Both Selestia and Transact come to mind for insured contracts (that take protected rights) or many SIPPs. All of which allow more sophisticated investment options (Selestia limited to fund supermarket UT range others allowing direct investments).

There will certainly be better companies around that offer a more appropriate level of service for that amount of money, or alternatively you might well feel it worth your while to spend 100 hours of your own time doing your own research and learning to manage it yourself.

There are certainly cheaper companies (and more expensive). However, I dont think we can comment on the service without actually knowing anything about the service.

samspain_2

James Breerley is the provider

dunstonh

Do you mean James Brearley ?

That would explain the costs. It would also suggest that discretionary fund management is involved.