Pension
Income
Investor

When to get professional advice about your pension

Anyone who has read the rest of this website should have the confidence and knowledge to arrange their pension money successfully on their own. But that doesn’t mean you won’t sometimes need professional advice along the way.

Here we outline the key points before and during retirement when that advice is most likely to be necessary. We explain how to find an adviser and how much you should expect to pay for the advice.

If and when you do sit down with an adviser, keep this book to hand: it will help you ask the right questions and ensure you have a better understanding of any recommendations.

When professional help is likely to be required

Final salary company pension transfers and other guarantees

For those in their 50s, teeing up your pensions ahead of a planned retirement will be more or less complicated depending mainly on what workplace pension arrangements you have in place.

As covered elsewhere on this website, if you have final salary (or defined benefit) pension entitlements, they are generally best left where they are. They will pay a guaranteed income underwritten by your former employer. But if you need or wish – for whatever reason – to move these entitlements in the form of a cash lump sum into another pension, you’ll need advice.

In fact it is a legal requirement – which will be made clear to you by the administrators of your company pension scheme – that you take financial advice if you wish to transfer benefits worth more than a certain value (currently £30,000).

This type of transaction is generally regarded as risky by financial advisers and many won’t undertake it. They fear that they will be open to future complaints or litigation. If you want to make such a transfer you need to tell your financial adviser upfront, to check whether they are prepared to take on your business.

Such transactions can also be extremely expensive, with advisers wanting to take a percentage slice of the assets as their fee (see ‘How much to pay’, below).

Likewise, if you have pensions to which special benefits apply – such as guaranteed annuity rates – you might well need professional help to evaluate the worth of those guarantees before you decide to move or encash the pension.

Tax and estate planning

Where you have substantial pension assets and/or a valuable property, you are probably going to need professional help at some point in order to avoid unnecessary tax. The following four circumstances don’t form a comprehensive list, but they are the most common triggers requiring people to seek tax advice in later life:

1. Pension assets worth £1m or approaching £1m. As covered elsewhere on this website, the current lifetime allowance – the maximum you can save within a pension in a lifetime – is set at just over £1m. You can negotiate your way through this on your own, but the rules are still relatively new. You may need the reassurance of a tax professional’s advice.

2. Total assets including your property of more than £1m per married couple. If you’re in this position, inheritance tax is likely to be due on your estate following your death(s). There are some uncomplicated – and wholly legitimate – steps you can take to reduce this liability. Taking tax advice early on will give you opportunities to limit the bill.

3. Marriage, divorce, death or inheritance. As in all stages of life, these key events usually require a rearrangement of your financial affairs. If you’re older there can be an element of urgency, as there is likely to be less time in which to manage tax liabilities or ensure that your wealth – pensions and everything else – is directed towards your chosen recipients.

4. Drawing a large, one-off sum from your pension. Remember that pension withdrawals are taxed as income (see our guide to tax). If you need to make significant withdrawals, for example to help a child buy a property, you may need to plan this in order to avoid paying higher rates of income tax. Depending on the size and complexity of your other income, you might benefit from professional help.

Equity release

The decision to mortgage your home in later life is so serious that there are specialist financial advisers who provide help with this alone. This is an advantage in some ways: you could expect a good equity release adviser to know all of the current available rates and options, for example, which is crucial for those who want flexibility in how they borrow (see our article on equity release).

But these advisers may not be as well qualified to see how your equity release arrangement will fit with your wider financial and tax circumstances.

Where to find an adviser

If a friend or family member whose circumstances are similar to your own can recommend their financial adviser, start there. It’s hard to beat a personal recommendation from someone you trust.

If you’re not in this position, there are several useful directories published by advisers’ trade bodies or other organisations. These include:

Unbiased.co.uk An independent directory of professionals searchable by area and specialism.

Vouchedfor.co.uk An independent directory of advisers, also searchable by area and specialism, but with the difference that advisers are reviewed by clients.

The Personal Finance Society Part of the Chartered Insurance Institute, this is the professional body representing financial planners. It publishes a directory of advisers and chartered planners at www.thepfs.org/web/app/membersearch/MemberSearch.aspx.

Moneyadviceservice.org.uk This is the government’s general financial information service. It includes a directory of financial advisers.

Pensionwise.gov.uk Another useful service set up by the government. It also offers a free phone-based or face-to-face appointment with a pensions specialist who can outline in broad terms your pension choices. It’s not tailored advice. To qualify you need to be over 50 and not have any final salary pension entitlements.

You can book your session online or by phone on 0800 138 3944.

What sort of arrangement to strike with your adviser

Advice businesses fall broadly into two camps. There are those that will help with certain one-off situations as outlined above. And there are others that will want a longer-term relationship with you where, most likely, they oversee your investments for a percentage fee. If you are comfortable managing your own investments – along the lines set out in the earlier chapters of this book – you shouldn’t need the latter service.

In this case, you are most likely to want help in relation to a specific need. Bear in mind that even if you know what you want to achieve from seeing the adviser, he or she is going to want to go through a process which will probably require you to provide information about your wider circumstances. This is normal practice. Even in relation to a specific transaction, you should expect the adviser to follow roughly these steps:

• Conduct a ‘fact find’.

• Research options.

• Report to you with recommendations.

• Implementation.

In some cases, you might be able to do the implementation element on your own.

What does execution-only mean?

At various stages in the process of finding and dealing with an adviser, you may come across the term ‘execution only’. This is the technical description of a process where you are not being given advice. It is the opposite of full advice. You may encounter execution only, for instance, when you are buying an annuity.

At all times, ensure that you know whether or not you are receiving full advice and how much you are paying for it. All advisers should be very comfortable discussing fees and processes, and neither you nor they should feel embarrassed to talk at length about costs.

How much to pay

If you require help with a particular scenario or situation, you’re likely to pay either by the hour or a fixed fee for the work to be undertaken.

By the hour

Depending on your location and the work, expect to pay anything up to £300 per hour. The average is around £150.

There are two dangers in paying by the hour. One is that you don’t know at the outset what the full cost will be. The other is that you may feel deterred from asking questions. It’s vital that you understand the advice and the recommended course of action and so, however you choose to pay, you should ask questions where necessary.

A fixed fee per project

This may be more satisfactory in that you know from the start the costs involved. But you might be surprised at how high the costs can be. Here are some examples:

Fixed fees for a range of scenarios

• Specialist advice on a defined benefit (final salary) pension transfer: £1,500.

• Advice on transferring a £100,000 pension with guaranteed annuity rates: £2,000.

• Converting a £100,000 pension pot into a lump sum and an annuity: £1,750.

• At-retirement advice where the client has a £200,000 pension, some final salary pension income, £100,000 of other savings and a £250,000 investment property, incorporating estate planning: £5,000.

Source: Unbiased.co.uk

‘A fixed fee is the best way to pay for financial advice’

By Billy Burrows, one of Britain’s best-known authorities on annuities and income planning in retirement and founder of a number of firms specialising in annuities

One of the most frequently asked questions, apart from “How much cash can I get?” is “How much will it cost to get financial advice?”

The simple answer is that most advisers calculate fees as a percentage of the value of pension pots or funds they are working on. Or they charge a fixed fee. Few advisers charge fees on an hourly basis unless for very wealthy clients with complex affairs.

I prefer a fixed fee for three reasons. First, it’s easier to work out a fee that is fair to the client and economic for my business. Secondly, I think it is more professional because a percentage fee may not reflect the amount of work done, especially for larger pension pots.

Thirdly, people know where they stand and know they can ask as many questions as they want without incurring extra charges.

One of the problems is that clients don’t have a yardstick and don’t know what value for money looks like. They may know the cost of a new car or kitchen, but have no idea what a fair price for advice is.

In my experience, the best way to deal with questions and concerns about fees is to take it step by step. All elements of the service are explained and so are the methods of paying. If the client wants to pay via a deduction from their pension pot, that can be arranged. Or they can make a personal payment.

I explain that financial advice is good value for the following reasons.

The stakes are high. Making the wrong decision could result in financial hardship or losing out financially. Some decisions relating to pension savings are likely to be the most difficult financial dilemmas you are likely to face in a lifetime. Getting help may be a wise investment.

Finally, if advice is taken and things go wrong, the financial adviser will help put things right.