Question
I retired last July and my wife will be retiring next August. We have been receiving advice from an IFA but I’m not sure how trustworthy this is.
She advised us to consolidate our AVCs and Stakeholder accounts (total value about £100,000) into a Scottish Widows retirement account. For this she received about 3% (£3000). We had thought that we would continue paying £300/month each into the new account instead of the Stakeholder.
Last September we noticed that we were not making the £300/month payment into our retirement account so we got back in touch and our IFA. She said she would arrange for us to continue making payments. Last week my wife received a supplementary schedule from Scottish Widows via the IFA and noticed a 10% per annum advisor payment charge. I wrote to our IFA to query the charge and she said ‘This is a charge of £30, per month, payable for one year only, and paid to Scottish Widows for the ongoing management of your fund. As part of this cost, Scottish Widows, pay 1% (£3) per month to us for our advice in this transaction.’
My wife phoned Scottish Widows to query the charge and was told that our IFA had been paid £360 commission up front and that we would be charged £30/month to reimburse Scottish Widows.
Should we have been advised to change from our Stakeholder to a retirement account when it meant we couldn’t keep on contributing £300/month without incurring commission charges? We will only be able to make about 10 months payments to the new account before my wife retires and there is no chance of making a profit because of the 10% charge. Our pension pot seems to be shrinking before our eyes. Should we cancel the new payments into the retirement account?Answer
My immediate concern is that you’ve been advised to switch low cost Additional Voluntary Contribution (AVC) and stakeholder pensions into a more expensive self-invested personal pension (Sipp) on the brink of retirement.
If you were at least 10 years away from retirement then the wider investment choice within a Sipp might justify the costs of switching and higher ongoing charges if it results in better performance. But I’m struggling to fathom why your adviser recommended the switch when you were so close to retirement (other than to pocket her £3,000 fee) as it'll almost certainly leave you worse off.
The only justification I can think of is that she thought you would be better off leaving your pension fund invested, drawing an income when required, rather than buying an annuity. This may or may not have been good advice depending on your situation, but I’m inclined to be sceptical.
As for the £30 monthly charge, the only reason for this is to pay the upfront commission paid to your adviser. The level of commission is chosen by the adviser and has nothing to do with Scottish Widows; they’re simply recouping the commission they’ve paid out. Having charged you £3,000 already I‘d have thought the adviser would have waived commission on your £300 contribution, especially given the mistake over continuing payments after the stakeholder pension was transferred.
Now, in fairness to Scottish Widows, the charges on its Retirement Account Sipp, while not the cheapest, are laid out very clearly. There’s a 0.5% annual service charge (on a £100,000-£150,000 fund) along with the underlying fund charges and any commission that the adviser elects to receive.
Let’s assume the underlying funds in your Retirement Account charge 1.5% a year, add in the service charge and around 2% is being deducted from your pension annually – about double what you’d expect from stakeholder and lower cost AVC pensions. Factor in the £3,360 that’s been deducted to pay the adviser’s commission and it’s not hard to see why your pension pot appears to be shrinking.
Based on the information you’ve provided, I think there’s a strong possibility that the advice to transfer your stakeholder and AVC pensions into a Sipp was inappropriate. If so, you’d have a valid mis-selling claim against the adviser.
If you believe this to be the case then send your adviser a letter detailing your grievance. If she doesn’t resolve the issue to your satisfaction (by putting you in the same financial position had the transfer not taken place) then take your case to the Financial Ombudsman Service, it won’t cost you anything and your adviser will have to abide by their decision.
I sincerely hope you can get this sorted out so your retirement income is not jeopardised.
I retired last July and my wife will be retiring next August. We have been receiving advice from an IFA but I’m not sure how trustworthy this is.
She advised us to consolidate our AVCs and Stakeholder accounts (total value about £100,000) into a Scottish Widows retirement account. For this she received about 3% (£3000). We had thought that we would continue paying £300/month each into the new account instead of the Stakeholder.
Last September we noticed that we were not making the £300/month payment into our retirement account so we got back in touch and our IFA. She said she would arrange for us to continue making payments. Last week my wife received a supplementary schedule from Scottish Widows via the IFA and noticed a 10% per annum advisor payment charge. I wrote to our IFA to query the charge and she said ‘This is a charge of £30, per month, payable for one year only, and paid to Scottish Widows for the ongoing management of your fund. As part of this cost, Scottish Widows, pay 1% (£3) per month to us for our advice in this transaction.’
My wife phoned Scottish Widows to query the charge and was told that our IFA had been paid £360 commission up front and that we would be charged £30/month to reimburse Scottish Widows.
Should we have been advised to change from our Stakeholder to a retirement account when it meant we couldn’t keep on contributing £300/month without incurring commission charges? We will only be able to make about 10 months payments to the new account before my wife retires and there is no chance of making a profit because of the 10% charge. Our pension pot seems to be shrinking before our eyes. Should we cancel the new payments into the retirement account?Answer
My immediate concern is that you’ve been advised to switch low cost Additional Voluntary Contribution (AVC) and stakeholder pensions into a more expensive self-invested personal pension (Sipp) on the brink of retirement.
If you were at least 10 years away from retirement then the wider investment choice within a Sipp might justify the costs of switching and higher ongoing charges if it results in better performance. But I’m struggling to fathom why your adviser recommended the switch when you were so close to retirement (other than to pocket her £3,000 fee) as it'll almost certainly leave you worse off.
The only justification I can think of is that she thought you would be better off leaving your pension fund invested, drawing an income when required, rather than buying an annuity. This may or may not have been good advice depending on your situation, but I’m inclined to be sceptical.
As for the £30 monthly charge, the only reason for this is to pay the upfront commission paid to your adviser. The level of commission is chosen by the adviser and has nothing to do with Scottish Widows; they’re simply recouping the commission they’ve paid out. Having charged you £3,000 already I‘d have thought the adviser would have waived commission on your £300 contribution, especially given the mistake over continuing payments after the stakeholder pension was transferred.
Now, in fairness to Scottish Widows, the charges on its Retirement Account Sipp, while not the cheapest, are laid out very clearly. There’s a 0.5% annual service charge (on a £100,000-£150,000 fund) along with the underlying fund charges and any commission that the adviser elects to receive.
Let’s assume the underlying funds in your Retirement Account charge 1.5% a year, add in the service charge and around 2% is being deducted from your pension annually – about double what you’d expect from stakeholder and lower cost AVC pensions. Factor in the £3,360 that’s been deducted to pay the adviser’s commission and it’s not hard to see why your pension pot appears to be shrinking.
Based on the information you’ve provided, I think there’s a strong possibility that the advice to transfer your stakeholder and AVC pensions into a Sipp was inappropriate. If so, you’d have a valid mis-selling claim against the adviser.
If you believe this to be the case then send your adviser a letter detailing your grievance. If she doesn’t resolve the issue to your satisfaction (by putting you in the same financial position had the transfer not taken place) then take your case to the Financial Ombudsman Service, it won’t cost you anything and your adviser will have to abide by their decision.
I sincerely hope you can get this sorted out so your retirement income is not jeopardised.
Read this Q and A at http://www.candidmoney.com/questions/question141.aspx
That is some inspirational stuff. thanks
ReplyDeletePension Mis Selling