Pension Income Options – a difficult choice?

Here is my article which appeared in the Llanelli Star  on 14th August 2013:

Question:

I am nearing retirement and have a personal pension that I started many years ago.  I have received lots of paperwork from my pension company.  I want to make sure that I make the correct choice when I apply for my pension income, but there seems to be many options available.  I am worried that I will make the wrong decision, which could affect my income for the rest of my life.

Response:

We’d all like to think that we’ll have a level of income that will really let us enjoy our retirement. However, with the cost of living rising all the time, it’s more important than ever to consider all the options available, to help you get the most out of your retirement income – and your retired life.

When you retire, you’ll be able to access your pension savings. You can usually take a tax-free cash lump sum of up to 25% of the pension fund. Meanwhile, the rest is often used to buy a pension annuity, designed to give you a stable, guaranteed income for the rest of your life.

What you might not know is that you don’t have to take your pension annuity from the same company that you’ve been saving your pension with. The ‘Open Market Option’ means that everyone can shop around all the pension annuity providers in the market to get the best possible income in retirement. There are sometimes significant differences between the incomes that pension annuity providers will offer you.

Some providers may give you a higher income if you have certain medical conditions, such as diabetes and high blood pressure, and lifestyle factors such as smoking. The difference between the best and worst incomes offered to you as a pension annuity could be considerable – so it’s worth speaking to an Independent Financial Adviser so that you can help you get the most suitable solution for your individual circumstances.

It’s also worth remembering that with most pension annuities, once you have made your decision you can’t normally change your mind and move your savings elsewhere.

Financial Advice is NOT free.

Retail Distribution Review (RDR for short) – a huge shift in financial services, and I for one think it is for the better.  It comes into effect in January 2013, but it’s started now.

Yesterday, I attended a RDR conference, covering subjects such as VAT, adviser charging, and positioning my proposition to my clients.  There are objectors to the change and others, like my firm – Financial Solutions Wales, who are embracing the change.  My firm is well positioned to provide advice to our clients well into the future.  Both advisers are suitably qualified to provide advice for the future, and I have gained Chartered Financial Planner status. (the Personal Finance Society describe Chartered Financial Planner as ‘the pinnacle for the financial planning professional’).

I feel more comfortable dealing with clients who understand that financial advice is not ‘free’.  Any adviser, like those at your bank, independent advisers, tied agents do not provide free advice, they must get paid!  This has traditionally been through commission, where the product provider sets the payment levels, advisers choose how much they would like from that offered by the firm he/she places the business with.  I like to agree all fees up front, it’s fairer to you – my client.  I met a potential client last week, who was offered a solution from another adviser, and  she was shocked to see the charge was £9000!  You won’t be surprised to understand that she asked me how much I’d charge for the same work – around a quarter of what she was quoted by the other adviser, agreed up front with our firm, delivering a proposition to meet her needs now and in the future.

As an independent financial adviser (IFA) I offer a professional service to my clients, often matching their needs with solutions available.  I have calculated the amount of time spent on providing advice is around 10 hours on average.  My clients see me for around 1/4 of that time, usually an initial meeting and then when I provide my recommendation.  Often, to ensure that they are comfortable with my recommendation, we may add another meeting or two.  ‘Behind the scenes’, I prepare for appointments, telephone providers, design solutions, research products, complete applications and follow up the application until it is in place.

This takes a considerable amount of time.

I must say that I agree that some people will be priced out of taking advice, because as I say before, it is rarely ‘free’.  However, I look forward to taking on those clients who value my services, and feel content with the solutions I provide.

Jeremy.