Question
I am in the process of getting divorced I have been awarded a pension of approx £104,000 what is the cheapest and truly independent advice about where to invest it, as I have to transfer it to another pension company. How can I find the best performing pension companies?Answer
The days of pension companies only allowing you to invest in their own funds are passing. It remains commonplace for stakeholder pensions (which are cheap, simple and still a good choice for many), but the prevalence of low cost SIPPs means it's now possible to cost effectively hold most available investments in your pension (HMRC rules permitting).
It's easiest to think of a pension itself as a 'wrapper' which gives some tax benefits and surrounds investments of some sorts. So your decision is really split into two: which pension 'wrapper' is best value? And which will be the best investments to hold inside?
Unless you have the option to buy extra years of service in an occupational final salary pension (worth investigating if relevant) then a low cost SIPP is likely to be the most appropriate option as far as pension wrapper is concerned. In my view you don't need to pay a financial adviser a fortune to choose a wrapper for you (in any case, they invariably tie themselves to just a few wrappers - at best - for practical/financial reasons). Take a look at our low cost SIPP comparison and you should hopefully get a feel for those likely to be best value for your needs.
By far the harder decision is which investments to hold inside. If you're within 5 years (or so) of retirement the decision is a lot easier, you'll probably want to stick to cash and relatively safe fixed interest investments like gilts to avoid the risk of big pre-retirement losses. It's hard to go too far wrong here provided you select a pension with decent cash rates - most are appalling, but the James Hay iSIPP is an exception.
Otherwise, you'll probably want to invest across a range of assets such as stock markets, fixed interest, commodities and commercial property (the split depending on how much risk you're comfortable taking).
Using investment funds tends for this is usually simpler than shares and offers a practical way to spread risk (because your money is spread across lots of shares). But choosing funds can still be a lottery, primarily because the majority of fund managers just aren't very good, despite being expensive. Using tracker funds potentially circumvents this issue, but they're not suited to all markets and asset types.
If you have no experience in this area then using a financial adviser for investment selection seems sensible. However, there are two big potential problems: many advisers aren't investment experts and will just recommend funds of funds (which are expensive, but profitable for the adviser) or put together an ill thought out selection of funds with little/no ongoing monitoring and advice.
So when asked to recommend a good investment adviser I genuinely struggle. Bestinvest, who built a strong reputation in this area, seem more focussed on selling their own SIPP and managed portfolio services these days (I suspect because there's more potential profit in it for them) rather than offering investment advice for third party SIPPs. Nevertheless, try giving them a call and see whether they'll advise on investments within a SIPP of your choice for 0.5% a year (i.e. the trail commission). Otherwise, I think it's a case of speaking to several Independent Advisers and seeing whether you feel you can trust one of them. You may find our financial advice page helpful, as it includes tips on how to choose a financial adviser.
Please feel free to ask any follow up questions below.
I am in the process of getting divorced I have been awarded a pension of approx £104,000 what is the cheapest and truly independent advice about where to invest it, as I have to transfer it to another pension company. How can I find the best performing pension companies?Answer
The days of pension companies only allowing you to invest in their own funds are passing. It remains commonplace for stakeholder pensions (which are cheap, simple and still a good choice for many), but the prevalence of low cost SIPPs means it's now possible to cost effectively hold most available investments in your pension (HMRC rules permitting).
It's easiest to think of a pension itself as a 'wrapper' which gives some tax benefits and surrounds investments of some sorts. So your decision is really split into two: which pension 'wrapper' is best value? And which will be the best investments to hold inside?
Unless you have the option to buy extra years of service in an occupational final salary pension (worth investigating if relevant) then a low cost SIPP is likely to be the most appropriate option as far as pension wrapper is concerned. In my view you don't need to pay a financial adviser a fortune to choose a wrapper for you (in any case, they invariably tie themselves to just a few wrappers - at best - for practical/financial reasons). Take a look at our low cost SIPP comparison and you should hopefully get a feel for those likely to be best value for your needs.
By far the harder decision is which investments to hold inside. If you're within 5 years (or so) of retirement the decision is a lot easier, you'll probably want to stick to cash and relatively safe fixed interest investments like gilts to avoid the risk of big pre-retirement losses. It's hard to go too far wrong here provided you select a pension with decent cash rates - most are appalling, but the James Hay iSIPP is an exception.
Otherwise, you'll probably want to invest across a range of assets such as stock markets, fixed interest, commodities and commercial property (the split depending on how much risk you're comfortable taking).
Using investment funds tends for this is usually simpler than shares and offers a practical way to spread risk (because your money is spread across lots of shares). But choosing funds can still be a lottery, primarily because the majority of fund managers just aren't very good, despite being expensive. Using tracker funds potentially circumvents this issue, but they're not suited to all markets and asset types.
If you have no experience in this area then using a financial adviser for investment selection seems sensible. However, there are two big potential problems: many advisers aren't investment experts and will just recommend funds of funds (which are expensive, but profitable for the adviser) or put together an ill thought out selection of funds with little/no ongoing monitoring and advice.
So when asked to recommend a good investment adviser I genuinely struggle. Bestinvest, who built a strong reputation in this area, seem more focussed on selling their own SIPP and managed portfolio services these days (I suspect because there's more potential profit in it for them) rather than offering investment advice for third party SIPPs. Nevertheless, try giving them a call and see whether they'll advise on investments within a SIPP of your choice for 0.5% a year (i.e. the trail commission). Otherwise, I think it's a case of speaking to several Independent Advisers and seeing whether you feel you can trust one of them. You may find our financial advice page helpful, as it includes tips on how to choose a financial adviser.
Please feel free to ask any follow up questions below.
Read this Q and A at http://www.candidmoney.com/questions/question625.aspx
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