Pension advice has the potential to make a big difference to how your pensions perform and how your retirement works out. This article will help explain what pension advice actually involves.
Pension advice is a type of financial advice that focuses on pensions. This can either be standalone advice relating to just your pension arrangements or as a part of a wider piece of advice involving your finances (such as Financial Planning).
Pension Advice is a Regulated activity in the UK and any financial adviser that wishes to give you advice must be appropriately trained and regulated by the FCA*. Whilst this has the benefit of ensuring that the advice given is of a high quality and protected by such organisations as the Financial Ombudsman Service*, it does mean that there may be a cost involved for receiving pension advice. However, by making sure you use an adviser which offers clear, up-front pricing and the opportunity of a free consultation to discuss your situation, you should be able to make a clear and balanced decision on what type of advice is required.
Most typically the advice will centre on maximising the growth of the pension pot, making sure it is invested and accessed in a tax efficient manner, helping the pension holder understand when and with how much they are likely to retire with, or a more specific problem such as transferring a pension pot overseas, consolidating several pensions into one or accessing a frozen pension.
When pension advice is given as part of wider financial advice (such as financial planning) it encompasses other areas of the individual’s life which can lead to greater overall financial benefit.
There is a wide range of different types of pension advice that you can receive depending on your exact situation. For example; how complex your situation is, what you are trying to achieve and how much you are willing to spend on pension advice.
Most pension advice will involve a review of your current pension situation, what your objectives/goals are and your preferences for how you would like to reach your goals (e.g. assessing your risk tolerance). A wider review of your finances is also common as your optimal pension arrangements will depend on how the rest of your finances are structured.
There are many things that a pension adviser can do for you, such as protecting your money from inflation, helping you understand how much you can afford to take from your pension without depleting your pension pot too early and advising on the most suitable investments that suit your appetite for risk.
Pension advice can also be seen as a way of solving problems and answering questions, much like financial advice.
Some types of questions that pensions advice can help answer:
Analysis of your current pension pot, expected growth rate, lifestyle required in retirement, cash flow analysis and overall tax position is used to forecast when you can retire with the lifestyle you want.
By analysing the type of lifestyle you want in retirement and how much your current pension is likely to deliver, you can gain peace of mind that you are putting enough away or if not then the amount you need to put away and when to be able to reach your goal.
With busy lives and several previous employers, it can be easy to lose track of old pensions, often from decades earlier. A pension adviser can trace old pension pots that you may be unaware you even have. Your adviser can then advise on the best way to access these newly found pension pots.
Many of us have old pensions, often from old employment, that can range from trivial to significant sums. A Pension Adviser can help you determine the best way to access these pensions taking into account tax and pension rules and your current and future financial situation.
An adviser can help you work out the amount that you can take out of your pension safely, without the risk of running out of funds. Helping to find that balance between enjoying your hard-earned pension and making sure your pension pot lasts long enough.
There are a lot of available tax saving opportunities in both the building up and withdrawing stages of pensions. An adviser can help you make sure you make the most of all the tax saving opportunities available and also avoid any tax penalties.
It is highly likely that your pension will spend most of its time invested in some way and as the pension holder, you often have a say in how it is invested. An adviser can help you understand the different investment options and help guide you to the most appropriate one for your specific situation.
Opening your own personal pension is a great way to put money aside for your retirement. A pension offers numerous tax breaks, such as tax-free growth of investments in your pension pot, tax relief on contributions and a tax-free lump sum on withdrawal.
There are other considerations to take in mind on deciding if a pension is right for you, as there are alternatives that may be more suitable. There are also a lot of different personal pensions out there and a lot of companies provide their own with different features, benefits and costs.
Whether you decide to research yourself or discuss with a pension adviser, it is likely to be beneficial to see if you could benefit from a pension, as missing out could have a big impact on the quality of your retirement.
If you would like to know more please visit our article on “are personal pensions worth it?” to help discover if a personal pension is worth it for you.
A very common question with pension advice is “how much will it cost”? This is a very difficult question to answer because not only is everyone’s pension situation unique, each adviser will have their own way of charging.
Many charge an upfront fee based on a percentage of the pension pot, with 3% being a common figure. Others, such as Leaf Financial Advisers, offer a fixed fee based on the complexity of the work involved (which is usually a lot lower than 3%).
In summary, it can be hard to predict what the cost of advice will be. However, as many good advisers offer a free consultation upfront to discuss, this can be a good way to find out how much the advice will cost, while also getting a chance to meet your potential adviser and see if they are the right person for you.
Pensions are vital for most people, with many relying on them to fund a large part of their later lives. Understanding what to expect from pension advice can be very helpful when choosing the right financial adviser or whether you think your need professional advice at all.
There is no set way that advice is delivered or what type of advice you may receive or be charged. Being aware of the different ways advisers may operate, and the difference between different types of advisers and how they operate should be helpful in finding the right one for you.
We are independent financial advisers and offer a wide range of advice solutions, please get in touch if you’d like to know more.