The good news is that if you’re approaching retirement you now have so many options open to you, but this can lead to confusion. We explain where to go for expert help
In many ways, now is a great time to retire. People have far more choice and freedom, thanks to the relaxation of pension rules. However, with increased choice comes greater confusion. The sheer number of options has made it even more important to make informed decisions.
The problem is that financial advice can be expensive and those with smaller pensions argue that seeking such help isn’t worthwhile. They have a point: the average hourly fee for advice is £150, while an initial financial review will set you back around £500, according to Unbiased.co.uk. Converting a £30,000 pension fund into a lump sum and annuity costs about £825, while £2,000 is needed for full advice on what to do with a £100,000 pot.
Cost isn’t the only problem. Many advisers simply aren’t interested in anyone with less than £100,000 in their pot, says Justin Modray, founder of Candid Financial Advice.
“Advice is useful, but must be cost-effective,” he says. “If it’s costing a small fortune for an adviser to look after everything, you could find your pension runs dry from the fees.”
The need for knowledge
So where does that leave savers who cannot afford or justify paying for pension advice?
Tom McPhail, head of policy at investment platform Hargreaves Lansdown, insists it’s vital you do your homework. There have been a raft of changes over the past decade affecting people about to retire, he points out, and these can have a material impact on your finances in later life.
“Bad decisions at retirement – even with relatively modest pots of money – can have potentially catastrophic effects for individuals further down the line,” he warns.
"There is a growing number of free or low-cost sources of guidance"
The wrong annuity could see you locked into poor-value income or leave your dependants without money when you die. Or by rushing to cash in a pension, you may miss out on growth and face a huge tax bill.
“Getting it wrong could result in you running dangerously low on your retirement savings and having to limp on without enough to live on for the next 20 years,” he adds.
The good news is there is a growing number of free or low-cost sources of guidance, which can help you make these calls. So where should you start?
This is a free and impartial government service that provides detailed information about the options for those aged 50 and over. Appointments, which can be face to face or over the phone, last between 45 minutes and an hour and provide specialist pension guidance. They will go through the different ways you can turn your pension into income and explain the key considerations for each.
According to Michelle Cracknell, chief executive of the Pensions Advisory Service (TPAS), which runs Pension Wise, people’s knowledge is often years out of date.
“One of the outcomes of a conversation with us is people understand the importance and complexity of the decision they are making,” she says. “Our role is to give them confidence by telling them the questions they should be asking of themselves and others.”
The organisation is also committed to ensuring that people understand the next steps they should be taking. Depending on their situation, this can include pointing them in the direction of further sources of support or finding a financial adviser.
This is a free online tool that is primarily aimed at people with smaller pots and less complicated retirement needs.
It only takes a few minutes to input basic details such as your age, sex, current pension and any other savings. As well as providing you with an estimate of your state pension, its budget planner enables you to see how much you’ll need to live on in later life.
The tool takes all the information and provides an estimated future pension. It then takes you through the various options – such as taking a flexible income and buying an annuity – and then provides a list of companies through which you can invest to maximise your income.
For each suggestion, there will be key data such as the minimum investment amounts and whether they deal directly with customers. The report can then be printed or emailed to you.
Fidelity’s retirement specialists
Fidelity has both a free and a paid-for service. Basic guidance is free and involves a phone chat with an expert who can help you understand the various options and provide general guidance on retirement planning.
Callers usually have a clear idea of what they want and are looking for general guidance on an issue, such as the implications of taking money out at the age of 55, for example.
Then there is the advice side, where you receive a specific personalised retirement plan and suggested funds to invest your pension in, from a set of Fidelity-managed investment products. This can cost up to £2,500 + VAT.
Discussions with advisers can take place over the phone or at the company’s London Investor Centre. Call 0800 368 6882 for more details.
LV Retirement Wizard
This service costs £199 and provides regulated retirement advice for people who are within three months of being able to access their pension, with a pot size up to £150,000.
The advice is accessed online, but LV (London Victoria) also offers telephone support for customers who need any help during the process.
The final report makes personalised recommendations for the specific products someone should buy from their retirement savings, across a range of providers.
After the report has been completed, an adviser will phone the customer to talk them through all the options and to check that they understand the advice given. For an optional additional fee of £499, LV can then set up any products recommended in the report. Online, video and telephone-based support is on hand during the process.
David Stevens, director of advice strategy at LV, says the service provides regulated advice to people who would have shied away from it.
“With nearly half a million people retiring each year without advice, it’s vital that the industry continues to look for ways to make advice more affordable and accessible for consumers, and that this market continues to develop,” he says.
Paying for financial advice
If you have a sizeable pension or your finances are complicated, independent financial advice may be the best option, says Justin Modray at Candid Financial Advice.
“If you’re wealthy and your pension is part of a much bigger portfolio of investments and sources of income, an option would be to pass it on to a beneficiary,” he says. “In this case, you might want to seek advice.”
Ideally, enhanced returns or savings you make as a result of the advice should recoup your fees. Ask for recommendations from friends and family or search for independent financial advisers (IFAs) in your area at Unbiased.co.uk. You can check whether they are regulated by the Financial Conduct Authority at Register.fca.org.uk.
Many IFAs will offer a free consultation and they must tell you how much they will charge before they start work. Always approach an adviser yourself and be wary of unsolicited calls or messages from firms offering pension advice. Recent research from Citizens Advice found that 88% of people were unable to recognise a pension scam.
What is right for you?
There is information available for free – or for a few hundred pounds – but whether it’s enough to guide you through the whole process will depend on your individual circumstances and longer-term goals. Mr McPhail at Hargreaves Lansdown agrees that keeping costs low makes sense, but says you must consider value for money.
“You need to find a blend that works for you,” he says. “You don’t want to pay more charges than needed, but you also want to find a pension that you find to be engaging, simple, and offering the services needed,” he explains.
The most important factor is that you increase your knowledge, says Ms Cracknell at TPAS.
“Don’t feel stupid because you don’t understand the complexities of a particular pension scheme,” she says. “Talk about your needs and we can help you to understand the options,” she says.
Retirement planning apps and online tools
Fidelity pension calculator
This online calculator won the Best Pensions Education Initiative category in our 2017 Pension Awards. It helps you work out how much income you will need to achieve the lifestyle you want and lets you know whether you are on track to meet your goals.
Aviva My Retirement Planner
This tool estimates how much your pension plans could be worth when you retire and shows you ways you can take retirement income using an annuity or drawdown. It also shows how taking your pension pot as cash could affect your tax position and provides more accurate estimates by including basic medical questions.
The £1.99 per month basic version lets you put together a retirement plan, including pensions, assets and debts, and it can forecast when your money will run out. There are also classic and premium versions (£2.99 and £3.99 a month respectively) that provide extra tools such as live feeds for shares and funds and the ability to model multiple investments.
Money Advice Service pension calculator
Simple and easy to use, this calculator works out your state pension age and basic income amount. It also enables you to calculate the target income you’d like in retirement, and you can factor in your various pension pots, contributions and other sources of income you may have. The calculator will identify any retirement shortfall and provide ways to improve the situation.
What is the difference between guidance and advice?
These two must not be confused. While guidance gives you general information about the options available, advice outlines the specific products that will meet your needs.
As far as pensions are concerned, someone offering guidance will be telling you about the different ways to generate an income in your retirement. Those offering advice, meanwhile, will look at your situation and tell you the best route to meet your needs. They will be able to make specific product recommendations too. So long as your adviser is regulated by the Financial Conduct Authority, they will also be accountable for their recommendations and you will be able to make a claim against them in the event of poor advice.