Setting up your own Pension Drawdown scheme
The internet is a wonderful thing and recent figures suggest that the UK are one of the most internet savvy countries in the world, we buy alot on the internet. Why not, its where we get a bargain, can get reviews on what we want to buy and get it done without leaving our house. When you are asked about a company you google it, lets see what they look like on the web. Personally I feel that this is a good thing.
Its not just shopping, we use the net to research and get advice and this can be said of pensions, I dont blame the consumer why not cut out the middle man and get the pension, drawdown plan, annuity cheaper going direct. Firstly drawdown is an advised product, doing it without taking advice means you are either an ex-pensions expert or you have potentially got your self some advice and then taken that and done it yourself. I am not disputing that you could do some research on the net and have all you need to know but such a project could take months and how do you know what you have done is right. Drawdowns are specialist and there are many financial advisors who are uncomfortable with dealing with them.
The misconception of RDR (the recent ban on commission) is that things are now going to cost the client money, they did already it just wasn’t shown in as clearer a way. This has led to many clients feeling they can bypass advice and do things cheaper, I want to try and dispel a few myths;
Doing Drawdown myself will be cheaper;
– No it isnt, because any provider that offers drawdown on a non-advised basis will charge you for it
- Standard life, they charge 1% upfront and between 1.3 to 2.5% ongoing charges
- Hargreaves Lansdown – You are looking at fund charges of 1.5% to 2.9% in total for a drawdown plan with various costs for taking money and setting up ranging from £99 +
- Fidelity – 1.5% upfront and similar fund costs to Hargreaves
- Many other providers just dont do drawdowns on a non-advised basis.
This is in comparison to a few examples of Fully advised drawdown plans
- Scottish Life, 0.9% on going charge, this includes adviser fees and fund charges
- LV 1.2% again total costs including all advice and funds.
- Standard life with advice 0.7% + 1% 1.7% on average direct with advice or 1.5% via an independent advisor. Therefore cheaper to not go direct.
- The figures above are all based on RetireRights adviser costs, there is nothing else to add.
Many clients tell me, ‘no your wrong Standard life will only charge 0.25% or Hargreaves is only £99 to set up and run‘. This shows the lack of understanding from clients and the attempt of bigger firms to wash over fees and try and hide them. I dont blame clients they are often hoodwinked by firms and there are many forum commentators who are adamant they are only paying minimal for their overall charges when really its nearer 2%. In fact when I have gone through costs with Standard Life I had a hard job to get the full breakdown and if I hadn’t known any better then I would have been thinking they were very cheap but its impossible to operate on such low costs, really that should be a big clue that charges are hidden.
I have noticed recently that charges are a big thing for clients and they dont want to be paying too much, this is fair enough and if you can compare then its good to see what everybody in the market charges.
The end game though is, what are you willing to pay for advice, a drawdown plan is your income in retirement and you want to be confident you have someone who is qualified and experienced and can offer you good advice at a reasonable price. As has been shown in this article if you get it right and align yourself with the correct firm you will find you get advice at a cost which is often the same or cheaper than a non-advised model. Drawdown clients need looking after and this years plans may be totally different to next years so the yearly reviews are key. Standard life did say they offered yearly non-advised reviews although I fail to see what they are going to help you with in such a review as they cant advise you. The FCA has made reviews compulsory for a reason and a review without advice cannot be classed as a suitable review.
Its all well and good getting a ‘cheap’ ‘ cost effective’ plan but if it doesnt perform then in real terms its costing you more than perhaps a bespoke Discretionary management service. A footnote all the above firms mentioned have track records which have hit top quartile performance in all the classes recommended.
Advice need not be expensive speak to one of our retirement specialists today for a free review.