Can I withdraw my final salary pension without paying for an adviser?

Q

“I recently turned 55 and am aware that I can withdraw my final salary pension if I wish. As the value is more than £30,000 I now have to find an independent financial adviser (IFA) who can give me an advice certificate.

The problem I have is that this advice/certificate is not a set fee but a percentage of the total pot. I’ve had three quotes ranging from £5,000 to £10,000. To be honest, I can’t see the sense in giving someone a percentage which I have no control over simply because the government says

I must have the advice. And with it being a percentage, I feel that the system is totally open to abuse depending on whom I go to. Surely this advice must be regulated?

Is there any way I can avoid this?

”

From: NH/via email

A

Just because you can access your pension at age 55, it doesn’t mean that you should. And just because you are able to transfer your final salary pension to a different pension, it doesn’t mean that you should.

For most people with a final salary pension, it’s sensible to leave it alone. The Government was worried that people would make the wrong choices and move out of their final salary pensions, giving up all of the benefits and guarantees, and would be worse off as a result. This is why it wrote it into legislation that somebody who wishes to transfer out of a final salary pension, which has a value of £30,000 or more, is required to take regulated financial advice.

I understand why some people begrudge paying for financial advice when they have already decided what they want to do, but this law is there to help protect people and there is no way round it.

Financial advisers typically charge for providing this advice in one of two ways. They either charge a fixed fee, which is payable whether they advise you to transfer the pension or not, or they charge a percentage fee based on the size of the pension. Payment of the percentage fee is contingent on the transfer taking place, which means the adviser gets paid if the transfer happens but will not get paid if it doesn’t. This second approach can create a conflict of interest as the adviser has a financial incentive to tell you to transfer your pension.

Where advisers charge a non-contingent fixed fee, this is usually more than £2,000 because giving advice in this area requires a lot of technical analysis and, as there are often large sums involved, it is a high-risk area for financial advisers.

If you still want to look at transferring your pension, then you should contact different financial advisers to establish their credentials and find out how much they will charge you.

However, I will point out that the primary purpose of a pension is to provide you with an income in retirement. There are some circumstances when it is acceptable to transfer out of a final salary pension but, by transferring, you will lose valuable guarantees and have to take responsibility for all of the investment risk.

If you make the wrong investment decisions, take out too much income, make withdrawals from your pension fund for other purposes, or underestimate how long you will live, there is a risk that your money will run out in your later years.

Patrick Connolly is a certified financial planner at Chase de Vere.