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Forking out for financial advice on your pension is not just paying for something you could do yourself

I have always been reluctant to pay for something I could do myself.

Sometimes, however, it pays to admit that it would be wise to get someone to do a better job for you.

Having spent an awful lot of time recently discussing pension freedom and financial advice, I’ve come to the conclusion that the vast majority of people should seriously consider paying a good professional to help them.

The reality is that even those of us who consider ourselves financially informed may struggle to think of all the things that should be considered.

For example, I could build a decent DIY investment pot and weigh up how using that income and spending a bit of capital stands against an annuity’s guaranteed retirement income.

Yet my conversations with advisers and experts have raised many other things I wouldn’t necessarily consider.

For those with smaller pension pots this ranges from gaining extra income by deferring a state pension and spending some pension pot cash for a while, to checking for old guaranteed annuity rates and paying money from an Isa into a pension to get a tax relief boost.

At the other end of the scale, our readers with substantial savings and pension pots and a family home that will take them into the 40% inheritance tax trap often want to minimise IHT.

One suggestion is that some would do better to spend Isas, savings and investments before dipping into their pension, which now looks a more IHT-friendly thing to pass on.

These practical elements of advice sit alongside the other bits of financial planning an adviser can help you consider.

How much money do you need to live on each year? When do you want to retire? Are you taking too little or too much risk? Are your plans at risk of lumbering you with an unnecessarily large tax bill?

Research from investment managers Brewin Dolphin laid the need for advice out. Its survey of 2,000 55 to 65-year-olds found that among those who could estimate the size of their pension pot, the average size was £163,000.

Of them, 29 per cent said they would need more than £1,500 a month to support their lifestyle expectations – or at least £18,000 a year.

At that rate a pension pot can easily be run down quickly.

The current basic state pension is just under £6,000 a year, the new flat rate state pension should be worth about £8,000 a year. 

That leaves a £10,000 to £12,000 gap for that £163,000 pension pot to fill.

Taking financial advice can make it go further, help you avoid a tax trap and work out how to narrow a £10,000 a year gap between the new state pension and the income you want.

Brewin Dolphin’s report showed in a hypothetical example how even for someone being overly ambitious with their pension aspirations, some simple advice could buy an extra four years of retirement at the level they aspire to.

The value of advice is the slogan used to promote financial advisers. The gist of the argument is that you could spend £1,500 on advice and get that back in extra income every year for the rest of your life.

Before you try and sort your pension out yourself that’s a point well worth considering – even if you don’t like the idea of paying.

Article by:  Simon Lambert for the Daily Mail

Money Matters: 26th Mar 2015 09:35:00

 

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