Monthly Archives

July 2017

Jul 28
1
Woman in care needing independent pension advice

The 5 Benefits Of Independent Pension Advice

By | Local Pension Advice | No Comments

Approaching retirement can be both an exciting and intimidating time. There are lots of decision to make and issues to sort through, not least how to approach the questions surrounding your pension pot and retirement income. Why should you seek independent pension advice however? Isn’t it possible to deal with it all yourself?

Chances are, you’ve most likely been saving over your working years into a scheme which gives you a pension pot at retirement. (That is, unless you’re on a final salary scheme – where you are paid an income based on your earnings once you reach retirement). If this is indeed true, then there are complex choices to be made concerning how to use this pension pot once you retire.

Many options are available to you, but many of them are difficult to understand and navigate. This makes seeking independent pension advice a sound course of action. Indeed, before you even get to this point you may need to answer the question of whether you can even afford to retire.

It gets even more tricky if you have many different pension pots. Should you bring them all together in some way? Moreover, what kind of State Pension will you be entitled to?

 

Pension Rules – Old vs. New

In previous years, once you had taken your cash (tax free) from your pension pot, the next requirement was to buy an annuity with the rest of the money. This would then give you a guaranteed income for your remaining years.

However, since 2015 new rules have been introduced which mean you are not restricted to buying an annuity with your remaining pension pot. You can use the money in any way you like. This obviously means more choice and freedom for pensioners, but also presents many complexities. As a result, many more people are seeking independent pension advice in order to help them identify their best options for maximising their retirement income.

 

Types of Independent Pension Advice

It’s important to understand that not all financial advice is the same. You can receive different types of service from a financial adviser, and different kinds of financial advice bestow you with various levels of protection. It’s important to understand this before acting on the adviser’s advice, as you will need to know what rights you have in the event something goes wrong.

Usually, when you first speak with a financial adviser they conduct some fact-finding exercises in order to ascertain important things about you. After all, they need to know your background, financial affairs and financial goals if they are to give you the best independent pension advice.

It’s vital that whatever financial advice you receive, that it is suited to your personal situation and circumstances. If it is not, you do have legal protection and should be able to complain that the adviser mis-sold you. If you complain and are unsuccessful, you can always take your complaint further to the Financial Ombudsman Service.

However, your motivation for seeking independent pension advice shouldn’t mainly be about protection. It should be about making the best choice out of the range of options available to you. By working with a financial adviser, you will be able to access far more products and choices than if you were to do things yourself. They will also have experience and qualifications in the specific subjects you’re dealing with.

 

Why Payment Matters

Even in our internet-dominated age where we have come to expect so much for free, most things of value simply cost us. (PensionAdvice.org is an exception of course! We put you in touch with a qualified, local financial adviser suitable for your needs – completely free).

Advisers need to make a living and their independent pension advice is highly valuable. Consequently, you will have to pay to receive this quality of advice. However, you are entitled to know the adviser’s fees and how much their recommended advice will cost before you proceed with any transaction.

Be careful when buying direct without advice. Sometimes it is possible to save on the broker / intermediary fees, but often there are hidden charges which are hard to spot. Often, these charges mean you aren’t paying much different from what you might have paid if you’d received independent pension advice from an adviser.

One possible route might be to compare the costs of going direct with the costs of receiving professional financial advice. From there, you might be able to make a more informed decision.

 

How Payment Works When Receiving Independent Pension Advice

There have been some important changes to the rules surrounding financial advice in the UK. Advisers are no longer allowed to receive a commission on the pension products they recommend. Rather, they must charge a fee. This is arguably good news, as it removes the incentive for advisers to sell financial products which give them a higher commission, but which might not be suitable for the client.

Remember, your adviser must disclose their fees to you before you receive independent pension advice. Make sure you have your needs and goals clearly in mind before you talk to the adviser. If you are vague or unclear, they will find it harder to discern how much work they will need to do – and the costs involved.

Just bear in mind, the costs of working with an adviser might seem high. However, if their advice enables you to sort out a complicated problem for years or even decades to come, isn’t that a worthwhile investment?

Finally, before we summarise, make sure you also ask the adviser whether they are restricted or independent. It’s almost always better to go with the latter, as they will be able to give you a wider range of financial products to choose from. Also, ensure your adviser is FCA-regulated. At PensionAdvice.org, we will only ever refer you to an independent, FCA-regulated financial adviser.

For more tips on what to look for in a financial adviser, read our article here.

 

Summary: The 5 Benefits Of Independent Pension Advice.

To conclude, here are the 5 main reasons to seek independent pension advice rather than try and do things on your own:

  1. You are entitled to more legal protection in the event things go wrong.
  2. You will have access to a wider range of choices.
  3. You will be able to make a more informed choice by drawing upon the adviser’s qualifications and experience.
  4. The hidden charges often involved with going direct are not always significantly lower than when you go through a broker / intermediary.
  5. You are less likely to need to re-visit your problem later, as the sound advice you receive should stand you in good stead for years to come.

 

 

Jul 19
0
Local pension adviser tips - man in the park

Things To Look Out For In A Local Pension Adviser

By | Local Pension Advice | No Comments

Choosing a reputable, local pension adviser who’s right for you can be a tricky process. After all, that’s why PensionAdvice.org exists – to help remove the complexity from that decision.

An important consideration is to ask yourself what kind of advice you need. For instance, are you looking for advice on your final salary pension? Do you have a particular set of investments you need help with? Are you looking for long-term care planning, or help with a pension pot? Are you looking for pension advice in the event of divorce?

Another crucial thing to think about are your goals. What specifically are you looking to achieve with your pension or retirement income? Are you looking to retire comfortably? Travel the world for a few years? Getting these clear in your mind will be key in matching you with the right local pension adviser.

One way to find a financial adviser is to ask trusted family and friends. This can be helpful. However, the difficulty here is it’s not always straightforward to see if an adviser has done a good job. The fruits of their advice may not emerge until years later.

It’s also difficult to distinguish “niceness” from “competence.” Just because a friend or family member likes their adviser because they are “nice,” doesn’t mean they are a good local pension adviser.

 

Key Traits Of A Good Local Pension Adviser

One key thing you should look out for is the phrase “FCA regulated”. You should only work with a local pension adviser if they are regulated by the financial services authority. This means there are clear rules they must follow, to ensure you get the best and most impartial advice possible.

At PensionAdvice.org, we only ever refer people to a FCA regulated adviser.

Another important distinction to make is between “restricted” and “independent” financial advisers.

Many financial advisers offer advice on a whole range of financial matters – offering, essentially, holistic for all (or most) of your financial needs. Restricted financial advisers might be restricted in the types of retail investment products they can offer. Or, they are limited to a select number of providers.

Independent financial advisers, however, are allowed to recommend you to a range of retail investment products, from across a wide range of providers.

At PensionAdvice.org, we only put you in touch with an independent, local pension adviser. This ensures you get the widest choice possible when choosing product providers for the financial product being recommended.

Another important note. Since 2013, any adviser who deals in pensions, investments, retirement income products (e.g. annuities) and financial planning in general must charge a fee for their advice. They must also hold higher qualifications than they did previously.

Beforehand, many advisers were getting paid via commission on the products they sold. This meant that people weren’t always being referred to the best financial product for them. They were being pushed towards it because it rewarded the financial adviser with a higher fee.

 

How Much Do Financial Advisers Charge?

A financial adviser’s fees can vary depending on what you are being charged for, and the payment method involved. Some advisers might be willing to negotiate on the payment option you prefer:

  • Hourly rate. This can range anywhere from £75 an hour to £350 an hour. The UK average is about £150 an hour.
  • Set fee. This is often the route taken for a set piece of work, and can range from hundreds to thousands of pounds.
  • Monthly fee. A flat fee could be used here, or you might pay a percentage of the money you have chosen to invest.
  • Retainer / ongoing fee. This only applies in the case of an adviser providing you with an ongoing service. The exception is where you are using a regular payment to pay off an initial charge over time.

It’s important that any local pension adviser provides you with a copy of their pricing structure to you, prior to providing their services to you. They will even need to give you a cost for the service you require, even if it’s just an estimate.

Several factors can impact how much a financial adviser charges you, including:

  • Geography. If your financial adviser is based in a more expensive part of the UK, their fees are likely to be higher to cover their overheads.
  • Service delivery method. Some IFAs can provide their service over the phone or online. This can lower the price compared to a face to face meeting, which often takes up more time and resources. Be careful, however, that if you use this route that the advice you get comes with a specific recommendation (for your protection).
  • Who does the legwork. Some firms get a qualified, experienced financial adviser to do all the work. Others will delegate specific tasks to support staff (e.g. a financial paraplanner), which can affect the cost.
  • The adviser’s qualifications. If the pension adviser in question is highly experienced and qualified, they are likely to be more expensive. You might feel this extra cost is justified, depending on the type of advice you’re looking for.
  • Your situation’s complexity. If your particular case involves a lot of sorting through, then this will take more time. More time, unfortunately, equals more money. Minimise your costs here by putting your paperwork into good order, and by being very clear about what kind of advice you need.

 

Summary: Key Questions To Ask A Local Pension Adviser

So, to recap. Here are some of the important questions to put to a local pension adviser before deciding whether or not to receive their services:

  • What is your pricing structure?
  • How much am I likely to pay for this particular service?
  • Are you an independent or restricted financial adviser?
  • What services do you offer?
  • If you are not an independent financial adviser, are you able to consider products from across the market?
  • What qualifications do you hold which are above the minimum you need to hold?
  • What kind of clients do you currently have who are in a similar position to myself?
  • Will my situation require ongoing advice? If so, what are the costs involved?

 

Jul 12
4
Two women thinking about defined benefit versus defined contribution

Defined Benefit vs. Defined Contribution – Which Is Better?

By | Defined Benefit | No Comments

The past few decades have witnessed the rise of the defined contribution plan. Simultaneously, we’ve also seen a decline in the number of defined benefit pension schemes.

What’s the reason for this? How do the two compare anyway, and what are the pros and cons of each?

In this article, we’re going to explore the answers to those questions. Firstly we’ll look at what sets these two pension plans apart.

Second, we’ll look at why defined contribution is on the rise, whilst defined benefit has been on a steady decline. Last of all, we’ll flesh out some of the main advantages and drawbacks of each.

 

Defined Contribution vs. Defined Benefit

Under a defined contribution plan, employees and the employer are allowed to contribute money towards the pension plan.

An example of how this might work follows. An employer might contribute towards an employee’s pension pot based on the latter’s age, salary, and years of service with the business.

As such, a new, relatively-young employee might get the equivalent of 2% of their  annual salary from the employer, which goes towards their defined contribution pension. However, an older employee who has been with the firm 30 years might get a contribution closer to 12% from their employer.

So where does this money from the employer go, exactly? It might be invested, for instance in a combination of stable value funds, annuities, common stock, and fixed income securities.

From the employer’s perspective, they have a lot of certainty. They can calculate their contributions each year, and provided they follow their obligations in this respect, they can more or less rest easy.

From the employee’s perspective, however, there is some uncertainty. They do not know for sure what their retirement income will be once they retire, because it will depend on how their investments have performed.

A defined benefit plan, however, has some important differences to the above. First of all, this plan provides employees with a predetermined retirement benefit. Similar to the above, this is usually worked out by considering the employee’s salary and years of service.

Under this scheme, moreover, the employer is responsible for providing all contributions to the employee’s account. The advantage here for the employee is that they are guaranteed a particular income level at retirement.

The downside for the employer is that they assume the risk, because they lose out if the account underperforms. If this happens, it will mean the employer has to increase the funding they place into the employee’s account.

So, to quickly recap:

  • Under a defined contribution plan, both the employer and employee provide funding into the latter’s account. Employer contributions are guaranteed and formula-derived, yet income levels at retirement for the employee are dependent upon the fund’s performance.
  • Under a defined benefit plan, the employer provides all contributions to the employee’s account. The plan is formula-driven, and income levels for the employee at retirement are secure.

 

Why Are Defined Benefit Plans Declining?

In the UK private sector (and also the US), there has been a notable supplanting of defined benefit plans by defined contribution plans.

The reasons for this are controversial and up for debate, but there are few plausible explanations.

First of all, people across the western world are getting older. As such, it has become more financially difficult for businesses to provide the incomes people need for longer retirements.

Second, the workforce in the UK is a lot of mobile than in previous decades. More and more people work multiple jobs and switch careers throughout their lifetimes. It is increasingly rare to find people staying with one company or organisation throughout their working lives.

Another possible reason for the decline in defined benefit pension plans could be linked to the rise of women in the UK workforce. It is sometimes claimed that women are generally less attached to a specific employer than men, because they still tend to have a higher responsibility for care-giving.

Shifts in the UK economy’s makeup could also be a factor in this shift away from defined benefit pensions. These have often been linked to the manufacturing industry, which has declined in the UK. Defined contribution plans, however, are historically more linked to other sectors, particularly in services such as the financial sector, which has risen over the past few decades.

Finally, the decline might also be partly attributed to a fall in unionism in across western countries. Unions have historically tended to favour defined benefit plans, due to the perceived securities is offers to employees.

 

So, Which Plan Is Better?

You might be tempted to jump to the conclusion that defined benefit plans are the best. From the employee’s perspective, that’s certainly intuitive. However, it depends on each specific person’s unique goals and circumstances.

The big allure of defined benefit plans is the income security it provides people in old age, meaning you do not have to really worry about saving for a comfortable retirement.

However, bear in mind that under this plan, if the fund’s investments perform worse than expected, it will require the employer to increase their contributions in order to meet their commitments.

It might be tempting to think that’s not your problem. And you may be right. However, for particular companies, this might mean reining in spending and resource allocation in other areas of the business in order to meet these commitments. Previously planned pay rises, for instance, may have to be halted.

From the employer’s perspective, the defined contribution plan offers intuitive advantages. It shifts the risk towards the employee, since the employer will not be required to increase their contributions if the fund underperforms. However, this obviously isn’t an attractive offer to the employee, whose earnings at retirement are not guaranteed.

On the other hand, given that people are now more mobile in their careers, defined contribution plans can be attractive to the employer because they are generally more “portable” than defined benefit plans. Defined contribution plans are also typically more attractive to employees who want to feel like they have more control over their retirement money.

If you are considering switching your pension plan, it is always best to speak with a qualified financial adviser who specialises in your particular pension scheme.

To speak to an adviser in your area, fill out our form and we can find the right person to help you in your specific circumstances.