[Finance] Are IFA’s a waste of money for most people ?

[dazzer6666]

For complex financial affairs I understand why using a IFA would be a sensible idea , for fairly straightforward finances and investment mainly into equities, I don’t understand why people assume an IFA will do a better job than a spread of tracker funds . With charges a IFA needs to do around 3% better just to be level .

In 8 out of 10 cases I’m not convinced an IFA is really necessary.

Not sure it’s anything like 3%……….

In my case

-IFA manages my SIPP to an agreed risk profile (fairly aggressive)
-I manage my own modest pot of savings to slightly different tactics (some risk free, some very highly risky)
-my other pension pot is very conservative (managed by a former employer)

The IFA is worth the money IMO - not just for pragmatic management of the SIPP (which I could do myself through trackers) but also the absolute maze of options for pension drawdown, tax impact etc. If it was simply investment recommendations I probably wouldn’t bother but the additional advice is imperative

 

[Weststander]

Not sure it’s anything like 3%……….

In my case

-IFA manages my SIPP to an agreed risk profile (fairly aggressive)
-I manage my own modest pot of savings to slightly different tactics (some risk free, some very highly risky)
-my other pension pot is very conservative (managed by a former employer)

The IFA is worth the money IMO - not just for pragmatic management of the SIPP (which I could do myself through trackers) but also the absolute maze of options for pension drawdown, tax impact etc. If it was simply investment recommendations I probably wouldn’t bother but the additional advice is imperative

I'm no more ore less financially astute than you, but I find the drawdown options and ensuing tax implications easy to understand. Admittedly I'm an accountant, but this aspect is more from my personal research.

 

[dazzer6666]

I'm no more ore less financially astute than you, but I find the drawdown options and ensuing tax implications easy to understand. Admittedly I'm an accountant, but this aspect is more from my personal research.

I’m sure you are…..I’m massively confused

My aim from now on is to pay no income tax, again, ever I need my IFA to work around that

 

[Shropshire Seagull]

Income tax can only be fully [and legally] avoided if your income is less than the personal allowance threshold - currently £12580 p/a.
Now, there are a couple of things you can do to help yourself - when drawing from a pension pot that you haven't already taken your 25% cash free lump sum [I think they call it uncrystallised].

So, some simple sums: drawdown £16k, the first 25% is tax free £4k so you'd be taxed on £12k = no income tax - BUT, can you really live on £16k?
Even at £20k, £5k tax free means your income is £15k, less your personal allowance of £12,580 means you'll pay 20% PAYE on £2,420 = £484 - so not tax free, bat again, could you live on £19½k?
You could squeeze a tiny bit more out of this if your legal partner is NOT a tax payer [earns less that £12,580] by utilising the married persons allowance.
And remember, any state pension you may get [about £9.5k for full at the moment] also gets classed as your income ...

There is truth in the saying about death & taxes ....
Only tax you won't pay as a pensioner is NI - but PAYE gets anyone earning over £12,580

 

[zefarelly]

Despite having decent income, we’ve had little cash for years due mainly to the kids and a love of holidays. But it was all under control, I broadly have had our financial timeline mapped out in my mind.

On that journey, things are now changing for the better, as envisaged.

We’d never have been able to acquire a BTL and I must admit I never looked at commercial.

But I have a couple of beneficial financial/business situations brewing in the background, so the SIPP’s and ISA’s aren’t everything for our future. So, I’m just trying to maximise these, I can take some risk and relax whilst doing so.

Likewise, we've spent 15 years just working and paying off the mortgage, still have a lad nearing GCSE's and then probably Uni . . . Not done a BTL but has always seemed like the best return. ALl I have done is buy a few lock ups, which I use, for some years for work, now just pleasure ( they are adjascent to home and have power/light) If I ever don't need them they yield good rent.

 

[Live by the sea]

Feels safer to me investing in property rather than shares ( if you have the financial ability ) preferably freehold property .

 

[knocky1]

Be interesting listening to my IFA this week. Our lump sum is ready to hand over but the Global markets are down since Friday the FTSE 2.5%. I know he'll want an immediate investment but I'll be hanging back whilst the markets falter due to global inflationary pressure.I'll then hold back 40% of the sum to play with elsewhere .

 

[zefarelly]

Be interesting listening to my IFA this week. Our lump sum is ready to hand over but the Global markets are down since Friday the FTSE 2.5%. I know he'll want an immediate investment but I'll be hanging back whilst the markets falter due to global inflationary pressure.I'll then hold back 40% of the sum to play with elsewhere .

cars n guitars ;-)

 

[Weststander]

A key pensions point for anyone planning to drawdown/take income (taking more than the 25% tax free lump sum).

The moment you do, your annual allowance for making further pension contributions permanently reduces to £4,000.

This doesn’t apply to final salary (defined benefit) schemes where the full £40,000 annual allowance may still apply.

I think this was to prevent people drawing large sums and immediately reinvesting them in a pension, gaining a huge cash amount in tax relief for the year, simply by churning money.

 

[Lower West Stander]

Ahh - the cult of the equity....

My IFA sorted out my SIPP and the asset allocation. Picked out the best funds etc as well as all the tax implications.

Sure if you just want to bung everything into UK equity you don't need an IFA - but I'm not sure why you'd make that decision in the first place....

 

[Springal]

I struggled with this a bit - I generally see the value in mortgage advisors etc, but IFA fees seemed fairly big around pensions. I wanted to reduce my SA liabilities and decided a personal pension was a good way to do this - particularly as some previous years I had been fortunate enough (or unlucky enough) to fall into higher rate tax. Spoke to a few local IFAs etc but just couldn't get my head around the initial fees and on-going management etc. Decided to invest in Vanguard where you set a 'retirement age' - further out they are a bit more risky and then get lower risk as you head towards that age. May have been able to get better results from an IFA but the initial fees just seemed steep to me.

As I get closer to retirement age absolutely I can see some benefit because of the complexities on how you take you pension etc.

 

[Weststander]

I struggled with this a bit - I generally see the value in mortgage advisors etc, but IFA fees seemed fairly big around pensions. I wanted to reduce my SA liabilities and decided a personal pension was a good way to do this - particularly as some previous years I had been fortunate enough (or unlucky enough) to fall into higher rate tax. Spoke to a few local IFAs etc but just couldn't get my head around the initial fees and on-going management etc. Decided to invest in Vanguard where you set a 'retirement age' - further out they are a bit more risky and then get lower risk as you head towards that age. May have been able to get better results from an IFA but the initial fees just seemed steep to me.

As I get closer to retirement age absolutely I can see some benefit because of the complexities on how you take you pension etc.

Wise choices imho.

Closer to retirement, you can take 25% of the pot tax free and simply draw down some of the rest if you need more. That's treated identically to payroll/PAYE by the platform provider, you receive it net of income tax and receive a pay advice each time you draw. With an annual P60 to be included by you on your annual SA return, if might trigger a tax repayment if the platform deducted too much tax.

[This is simpler than the old mandatory method of looking at annuities, all the types thereof and shopping around].

 

[dazzer6666]

Income tax can only be fully [and legally] avoided if your income is less than the personal allowance threshold - currently £12580 p/a.
Now, there are a couple of things you can do to help yourself - when drawing from a pension pot that you haven't already taken your 25% cash free lump sum [I think they call it uncrystallised].

So, some simple sums: drawdown £16k, the first 25% is tax free £4k so you'd be taxed on £12k = no income tax - BUT, can you really live on £16k?
Even at £20k, £5k tax free means your income is £15k, less your personal allowance of £12,580 means you'll pay 20% PAYE on £2,420 = £484 - so not tax free, bat again, could you live on £19½k?
You could squeeze a tiny bit more out of this if your legal partner is NOT a tax payer [earns less that £12,580] by utilising the married persons allowance.
And remember, any state pension you may get [about £9.5k for full at the moment] also gets classed as your income ...

There is truth in the saying about death & taxes ....
Only tax you won't pay as a pensioner is NI - but PAYE gets anyone earning over £12,580

Yep - at the moment I don't have any income at all except for a few divvies on unsheltered investments (I took redundancy last year and I've only just reached 55 so not drawing on pensions yet and I'm not working), I've been moving as much of my non-pension savings as I can into tax-efficient homes for a while now (most is already in ISAs and PSBs) so unless I start doing some work (possible) I 'll simply draw down from the pensions at some point within the personal allowance (ie no tax) and bridge any gap (there will be quite a big one) by using savings, which in turn I can top up when I want by taking 25% tax free from the pension pots.

The kids aren't going to have anything left when I pop my clogs though

 

[Weststander]

Yep - at the moment I don't have any income at all except for a few divvies on unsheltered investments (I took redundancy last year and I've only just reached 55 so not drawing on pensions yet and I'm not working), I've been moving as much of my non-pension savings as I can into tax-efficient homes for a while now (most is already in ISAs and PSBs) so unless I start doing some work (possible) I 'll simply draw down from the pensions at some point within the personal allowance (ie no tax) and bridge any gap (there will be quite a big one) by using savings, which in turn I can top up when I want by taking 25% tax free from the pension pots.

The kids aren't going to have anything left when I pop my clogs though

Your £2m home on Folders Lane should see them set fair

 

[dazzer6666]

Your £2m home on Folders Lane should see them set fair

I wouldn't be let near Folders Lane - I get chased away by dogs when I go jogging up there

 

[Tim Over Whelmed]

Wise choices imho.

Closer to retirement, you can take 25% of the pot tax free and simply draw down some of the rest if you need more. That's treated identically to payroll/PAYE by the platform provider, you receive it net of income tax and receive a pay advice each time you draw. With an annual P60 to be included by you on your annual SA return, if might trigger a tax repayment if the platform deducted too much tax.

[This is simpler than the old mandatory method of looking at annuities, all the types thereof and shopping around].

But if you continue working it may not be the best thing to do, i.e. take 25% tax free as I believe this restricts your ability to take advantage of the tax benefits of pension contributions going forward, my IFA told ne that, and he was right.

 

[Weststander]

But if you continue working it may not be the best thing to do, i.e. take 25% tax free as I believe this restricts your ability to take advantage of the tax benefits of pension contributions going forward, my IFA told ne that, and he was right.

Isn’t someone mixing up the implications of taking the tax free lump sum (none, except that sum’s no longer invested for growth and income) and taking drawdowns from the 75% …. where I mentioned a serious point to be aware of?

 

[nicko31]

Slightly off topic but I read today Sunak is considering a tax raid by reducing lifetime SIPP allowance to 8 or 900k.

https://www.thetimes.co.uk/article/sunak-considers-pension-taxes-to-pay-for-covid-recovery-wtgssv2tt

The problem with this is once you start on this road where does it end? You need the public to have confidence in investing in SIPPs, this would be pretty damaging

If they are going to try and raise cash maybe reducing the tax free contribs limit to say £25 or £30k (from present £40k)

 

[Weststander]

I wouldn't be let near Folders Lane - I get chased away by dogs when I go jogging up there

Russians with their dobermans. Buying up huge Folders and Ockley places, demolishing them, turning them into three large new builds.

 

[beorhthelm]

Slightly off topic but I read today Sunak is considering a tax raid by reducing lifetime SIPP allowance to 8 or 900k.

https://www.thetimes.co.uk/article/sunak-considers-pension-taxes-to-pay-for-covid-recovery-wtgssv2tt

The problem with this is once you start on this road where does it end? You need the public to have confidence in investing in SIPPs, this would be pretty damaging

If they are going to try and raise cash maybe reducing the tax free contribs limit to say £25 or £30k (from present £40k)

tweeking the limit from 1m does seem unnecessary, affects private sector more than public, and probably wouldnt raise much. the real revenue raiser will be to cut the higher rate pension contribution relief. its quite a daft set up where the middle classes earning >50k get a larger relief than those on more modest salaries.