by Julie Wilson, Chartered Financial Planner at PenLife Associates
If you’ve transferred your Final Salary (or Defined Benefit Pension), you might have made a big mistake.
We don’t mean it was a mistake to transfer your pension: there are often compelling reasons to do so. And anyway — if you have transferred, it’s too late to do anything now. What we’re finding is that clients made the right choice to transfer but the mistake they made was the choice of adviser. Now don’t get us wrong, most UK advisers do care and will do a good job; but a significant number of advisers only care about the initial sale, not the ongoing service. All our advisers have clients like this. They were promised the world initially, but only the bare minimum — if that — is done thereafter.
So first, what service were you told to expect? If you received ‘transactional’ advice, then it’s probably nothing. You’ll likely have paid a fixed fee for a report and the relevant paperwork. In this instance, there will be no ongoing investment advice, and no ongoing fee payable. If you are paying an ongoing fee, this means that you should be receiving some level of ongoing service, especially because when we’re talking about final salary transfers it’s usually a substantial figure.
Before transferring your pension, you should have received (and signed) a document which outlines the service you could expect. This is outlined by the adviser/firm you’ve chosen — so it’s whatever they say it is. At the time you agreed to work with them and signed this document, you probably didn’t have much to compare it with because you don’t know what you don’t know. This is where we come in.
If we advise clients to transfer their final salary pensions, we have a rigorous process which ensures the advice is and — of equal importance — remains suitable. This usually involves ‘Cash Flow Forecasting.’ This type of forecasting maps out how much money you can expect to receive over a period of time. It takes into account predicted future growth and current/future withdrawals so you know how long your money will last you. This is a must-have. So if you’re receiving investment advice which doesn’t include Cashflow Forecasting — speak up!
Our reviews also include ‘Lifestyle Planning.’ This style of advice is relatively fresh in the UK. It sounds pretty airy-fairy but it’s just making sure you’re including your personal life goals and dreams in your financial plan. Again, a lot of advisers only outline your goals in the context of financial planning — like X amount of growth or X amount of withdrawals. We put your goals in the context of actually living — that is, making sure you get the life you want and do the things you want to do. In our experience, no one’s life goal is to see good growth in their investments: It’s travelling the world. Or treating the grandkids. Or helping the next generation get on the housing ladder. Or that cottage by the sea. (What’s yours?)
On the list of things some advisers don’t take responsibility for is your ongoing tax position — not only in retirement but beyond. Sure, if you’re investing in good funds, you should see solid growth over time but the business impact of that can be less significant than the return you get from proper tax planning. Let’s take a look at a possible scenario: Jayne is divorced with £400k invested in investment portfolios (in ISAs and OEICs), a property worth £500k and £100k in other assets. Her main aim in life is to leave as much as possible to her children. Over 5 years, she’s made an impressive £50k return on her investments. She thinks her adviser has done a great job! But Inheritance Tax has been completely overlooked. When she dies, her children will face a £200k Inheritance Tax Bill. So you can see there’s more to Financial Planning meets the eye. It spans far beyond that. You NEED to be confident that your adviser has all elements under control.
So what should you do? Check your position. Make sure that if you’re paying for a service you’re getting a complete and thorough one. If not, you need to take action. And you can start by requesting the book below. It’s never been more important to have absolute confidence in your financial plans and to know you have everything covered.
Paul Armson has been working in the financial advice industry since 1982 and has been helping financial advisers deliver a more meaningful service to their clients since 2006. We think this ‘Enough?’ book perfectly illustrates the modern issues we’re talking about in this article. BUT we only have so many to give away — so first come, first served!