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Write to Kate with your pension problem: pensionsdoctor@Finance.co.uk. Columns are published twice a month on Tuesday mornings
Kate,
I’m 59 and I’m planning to retire at 62. I have a final salary pension of around £12,000 a year and about £500,000 in various defined contribution pots. I plan to take my defined benefit pension and use drawdown to top-up my income to around £20,000-£24,000 a year and reduce the drawdown income once my state pension kicks in at age 67. My wife is 10 years younger, works as an academic and is on £60,000 a year. She will continue to work. We will pay off the mortgage in two-and-a-half years’ time.
I want the help of a financial adviser to help me with retirement planning, but I’m struggling to find one. I want help with the mechanics – what happens when I retire, how do I turn the pension pots into funds I can draw down, how does drawdown work in terms of tax relief and liabilities, how can I minimise charges?
Also, I would like to set aside enough to help the kids with a house deposit (£40,000 each, £80,000 total) using my tax free lump sum.
TK, via email
It’s fantastic you have a retirement plan, with clear financial goals. Having a financial adviser can help you deliver your plan and get the most out of your pension savings. Of course, there is no requirement to use an adviser (they aren’t always cheap) and you are free to manage your money on your own. But a good adviser will save you time, effort and likely some tax, too.
What an adviser does
Advisers will help you to make the right decision for your circumstances and importantly help you avoid making costly mistakes. They are regulated by the Financial Conduct Authority and have to pass exams in order to give advice. If you think you have been giving poor advice, you can also make a complaint to the Financial Ombudsman Service.
An adviser will look at your financial goals and create and implement a plan which helps turn them into reality. Financial advice is not just about money. It also gives you peace of mind. Advisers play other important roles such as acting as your coach to make sure you get started and have a plan. They also help you to guide you through potentially difficult times and help protect your wealth by aiming to minimise tax and maximise growth.
The "pension freedom" reforms, introduced in 2015, give you more choices on how to take your defined contribution pension savings. But more choices mean more complexity so a financial adviser can help you turn your pension savings into a retirement income and manage this in retirement.
An independent financial adviser, or IFA, will look for solutions across the market and provide advice that is tailored to you. They will use a fact-finding process to find information about your personal and financial circumstances to give you a personal recommendation. Advisers have access to a wider range of choices than you would realistically be able to access yourself.
Finding an adviser
To make it easier to find an adviser, the Money Advice Service publishes a directory of regulated advisers. Those listed are regulated by the FCA, offer personalised advice and can choose from a wide range of pension providers.
Fees
Personalised advice must be paid for. Advisers will charge you a fee for the work they carry out. The amount depends on several factors including the type of work they’re doing for you and how you want to pay. There are different ways of paying for advice – the Money Advice Service has a good summary here. The MAS says the average fee is £150 an hour, but in reality most advisers charge a percentage of the assets you are asking them to look after.
Ask Kate a question | The Telegraph’s pensions doctor
Planning ahead
It’s a good idea to plan ahead before meeting with an adviser, by finding out as much as you can about your pensions, getting your paperwork in order and speaking to Pension Wise, the Government’s free guidance service for the over 50s. Pension Wise will help you understand more about your options and prepare you with questions to ask a financial adviser.
You already have the security of your defined benefit pension, which is payable for life. You’ve said you’re interested in using your DC pensions for "income drawdown". It’s worth checking to see if your DC pensions give you access to drawdown and if they do, find out what the charges are. You may need to move some or all of your DC pensions to access drawdown and an adviser will help you with this.
Before making any changes to your DC pensions you should check to see if they have any guarantees or other valuable benefits. You would normally lose these if you moved your pensions to another arrangement, even with the same provider.
You should also think about how you want to take your benefits using drawdown. You will normally be able to take 25pc of your DC pensions tax-free with the balance invested in drawdown. You can then take taxable income as and when you need it.
You don’t need to take all your benefits from your DC pensions at once. Instead you could choose to take them in a more phased approach if that suits your circumstances. An adviser will help work out the most suitable option based on how much income you need while making sure you don’t pay more income tax than you need to and taking account of your aim to give your children money to use as a house deposit.
You also need to think about how your drawdown funds will be invested, and you may need ongoing support from your adviser to help you monitor this. An adviser can also help you think ahead to your later years to ensure that the income you take is sustainable and you don’t exhaust your drawdown funds too quickly.
You should also think about death benefits and who you would like to nominate to receive any remaining funds.
Joint retirement planning
You may wish to think about joint retirement planning with your wife.
As your wife is working, presumably she has a pension. Although she intends to continue working, it’s a good idea for her to find out more about her own pension and work out if she’s on target for her retirement income goal.
To help you both get a full picture of what your retirement will look like, you should both check your state pension entitlement which varies from person to person.
Having an adviser looking at your finances jointly will help you both better understand the money you have, and this may allow you to retire earlier than you first thought.
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