My mention last week that I was going to pull myself together and get a pension sparked a flood of emails. Some came from independent financial advisers (IFAs) very kindly offering help (not yet, but thank you very much). One came from someone pointing out that, however cheaply I manage my pension, any tax benefits I gain will still be cancelled out by the cost of an annuity (I know annuities are expensive, but I am not sure they are this expensive – we’re going to look into it and we’ll let you know the result).
But the most distressing came from a reader about my age who, just like me, was terrified into submission by the Turner report and had decided to get a pension too. So she’d been sent to an IFA. Her email to me said ‘the annual fee on my pension is 1.5%, and the commission is £5,000. Does that sound reasonable’? No, it most certainly does not, particularly as when I had a closer look at her documents, it wasn’t £5,000 it was £5,600, payable to the IFA in full ‘immediately’. Her IFA was at pains – quite rightly – to point out that the money was paid to him by the pension firm rather than directly by her and that it would come out of her 1.5% rather than being additional to it. But that is rather beside the point: the pension firm is hardly going to be paying him money it isn’t making from her, is it? And it is certainly planning to make money from her – big time. A quick skim through her policy documents showed that if she takes out this pension and keeps paying into it at the same rate, she’ll have paid £278,400 by the time she’s 60. But she’ll also have paid – according to the policy – £97,700 in ‘deductions’ – ie, commission and charges. I hardly know where to begin. With the insane charges themselves? With the complacency of the pension company that is assuming she will make returns of 7% a year on her fund until she is 60 and so will barely notice the daylight robbery going on around her? On the plus side, if she makes less, she’ll pay less in ‘deductions’.
The IFA says that £5,600 isn’t such a bad deal, given his firm intends to advise her on her pension until she is 60. But it still doesn’t make any sense to me. Do you pay your garage upfront for 30 years of repairs just in case you need them? Your local corner store for 30 years’ worth of Crunchies just case you have a sugar craving in 2025? No? So why does anyone pay for financial advice in advance like this? It’s beyond me. Subject to the results of our upcoming investigation into annuities, I’ll be getting the cheapest Sipp on the market and managing it myself.