Why women must plan for retirement
The saying: "you get what you pay for" is true with most things in life. There is no exception when it comes to financial and retirement planning - yet many people seek to reduce the cost of investing by choosing the DIY route and picking investments themselves.
Alternatively, they do nothing because they don't have the confidence to design their own retirement plan. Worryingly, the number of women preparing adequately for retirement is at an all-time low, according to the Scottish Widows 2013 Women and Pensions Report.
Just 40% of women, compared to 49% of men, are preparing adequately for later life. This marks a drop from 42% last year and 50% in 2011. Over a third (37%) of women have no pension whatsoever, compared with a quarter (27%) of men.
Of those who are saving, women are only managing to put aside an average of £182 a month, compared with £260 among men.
New rules kicked in at the end of 2012 that changed the way in which consumers pay a financial adviser for retirement planning or any other kind of financial advice. The Retail Distribution Review – which was responsible for changing the rules – stated that all advisers should charge a separate fee, like solicitors and accountants, rather than take commission.
More women (31%) than men (23%) say they will not use a financial adviser if there is a fee to pay, according to a report by NMG Consulting. It concluded women are less likely to pay adviser charges and more likely to make an investment without taking advice, or even be put off purchasing a financial product completely.
Sarah Bowles at MAC Financial Advice says: "It is a worry that the changes in the way people pay for advice have put people off getting help with their financial planning. I have had several female clients who have decided not to go ahead with their investment because they deemed the advice bill too expensive.
"Women are less interested in getting advice as they often worry about how much they don't know about finance and believe they might be ripped off as a consequence. Doing nothing is the worst thing savers can do."
Philippa Gee, who runs Philippa Gee Wealth Management, says: "The change in the way advisers are paid doesn't mean your adviser will charge more, it just means that the cost will be much more transparent.
"With greater transparency about what people pay comes a focus on charges applied by pension and investment companies. We are already seeing some pressure to bring these down, which is good news for the consumer."
Why should you get advice?
The chances of having the lifestyle we want are increased with careful planning. This means choosing investments, taking advantage of tax breaks and growing your money as much as possible within your appetite for taking risk on the stockmarket.
An adviser will look at the bigger picture of your financial situation such as equity in your home and any other assets or liabilities you have.
This all helps determine the right level of risk you are willing to take and is particularly important when doing retirement planning.
Previous studies have shown people who have taken advice end up with larger pensions. Figures from unbiased.co.uk – which promotes financial advice – claimed the average pension for consumers who have been advised on their retirement planning is £74,554, double that of those not seeking advice.
Based on a 54-year-old – the average age of pension savers surveyed – this could mean the difference between getting a £493 a month retirement income based on the advised figure versus £261 a month for someone who didn't take advice.
Hannah Edwards, chartered financial planner at BRI Asset Management, says: "By using a professional, savers can get access to advice in all the areas where people can go wrong such as investment selection, tax planning and which pension is right for them.
"We have had change after change in the pension industry and to go this alone is at your peril. Once the right investments are chosen, they need to be monitored but many people don't have the time or inclination to take on this responsibility. Doing nothing is the worst thing. Having a clear idea about what they are on track for in retirement and what they need to do in the interim is absolutely key."
While typically men look after the household finances, more and more women are doing so.
Edwards says: "Divorce often triggers getting financial advice for the first time. While there are notable exceptions especially with working women, in the main it still seems to be the man who attends to family finances. When women are divorced or bereaved, it can be a fairly sharp shock to the system."
Is advice expensive?
The cost of advice depends on what you want to do. If it's a straightforward investment, it will be cheaper than a complete money makeover looking at all aspects of your finances, including retirement planning.
According to adviser network Unbiased, a typical fee for advice on how to invest £10,000 in an Isa is currently £300.
Converting a pension fund into an income at retirement would cost between £1,350 and £3,000 depending on the complexity and route taken. Karen Barrett, chief executive of unbiased.co.uk, says: "A focus on cost alone is not necessarily helpful for consumers looking for the best adviser for their needs. As with any professional adviser, costs are only relevant in terms of the services provided and we urge consumers to bear that in mind when shopping around for an adviser."
Crucially, investment choices with the aid of a financial adviser gives you access to recourse through the Financial Ombudsman Service or the Financial Services Compensation Scheme if things go wrong.
Going it alone
Choosing funds in which to invest your money without the help of an adviser can be a minefield because there are more than 2,500 available. There are websites offering help with fund selection for pensions or any other kind of investment. They offer risk ratings that enable the investor to match their attitude to risk with a handful of funds.
What's important to remember is that this does not constitute advice - just guidance. The crucial differences are that guidance is not tailored to individuals and will not review asset allocation when circumstances change.
Those who are confident in choosing their own portfolios can use fund supermarkets, also known as platforms or discount fund brokers, which offer access to many different providers. There are a whole host of such firms that allow you to sign up and invest your money, such as Fidelity, Hargreaves Lansdown, TD Direct Investing, Interactive Investor and Charles Stanley Direct.
Danny Cox, head of financial planning at Hargreaves Lansdown, says: "Making the wrong pension decision could cost you thousands or even put back your retirement. Taking independent financial advice from a specialist pension adviser can be worth its weight in gold."
How to find help
Unbiased.co.uk provides details of advisers in your area. You can also look on vouchedfor.co.uk, which allows consumers to rate advisers they have used. Look at unbiased.co.uk/value-of-advice/adviser-checklist for an idea of questions to ask an adviser about their services.
If you are confident in going it alone or just want to do some homework first, then there is plenty of help on the internet. Have a look at hl.co.uk, chelseafs.co.uk or bestinvest.co.uk for information on funds. To make sure you're using the cheapest way of investing through a platform, look at ideasforinvesting.com/Explore-investment-accounts/investment-accounts.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.