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Financial Friday: Pensions (really the tale of a financial adviser)

Now, if you want to retire ever pensions come to mind.

I’m not ashamed to say that it took me two weeks of reading investing blogs and books to twig that a pension is just a name for investing in the stock market. It’s just with a pension you get basic tax relief (20%) added to the amount you put in and you’re not allowed access to said money till the government say so (currently 55).

(Rant ahead) This year my work set up a pension for me as part of the auto-enrollment scheme going on. However many moons ago I visited a recommended-by-a-friend FA and set up a pension for myself at £25p/m figuring that once my wage went up I’d start paying more in. Fast forward to today after two kids, a house move, never quite getting around to increasing my monthly payments and there’s just over £5k in there.

Now I might not know much but I do know that no-one’s going to enjoy retirement with a £5k pension pot*

Sh*t.

Cue sleepless nights and wondering how much kidneys sell for. I decided to go back to ‘my’ FA and ask whether he reckoned I should start putting money into my new company pension or my current pension.

Neither he claimed. I have a much better option for you he promised and showed me large clients accounts on a shiny website. He scoffed at my idea of paying off the mortgage when you are guaranteed to make 20% on anything put in a pension plus the 8-12% the stock market will deliver. For just £750 plus a 0.5% annual fee he could change my current pension over and I could start seriously saving towards my future!

Oh I was bedazzled. Won over by his gift of the gab, even as I knew he was just selling his product to me, his absolute confidence had me figuring that it couldn’t hurt. After all I could change over my dowdy old pension and reassess in a year or two after learning about this investing malarkey. I signed on the dotted line and went home with the small print to read and fourteen days to cancel if I had second thoughts.

Upon reading the small print I came across a long list of percentage charges. A bit worrying I thought so I contacted my FA and asked for the six different charges to be explained to me.  I was quickly advised that I was “getting a little carried away with the charges”. That “if it wasn’t the fact you are a long term loyal client I (the FA) wouldn’t be taking on this business” and “The fact that ….. other charges are applicable to my way of thinking mean very little”.

Um, no. Even if the charges were insignificant ** I dislike, for some unknown reason, being fobbed off especially in such a manner. I instructed that the transfer be put on hold and then later cancelled the same amidst suggestions that I’d be charged until I helpfully reminded him of the fourteen day right to cancel.

In the end I did the smart thing and called my original pension provider to find out how much they’d charge for transferring my pension out – nothing. Asked my company pension how much they charge to transfer a pension in – nothing. Then I acted on impulse – figuring I’d just saved myself at least £750 – I transferred my old pension to my new company one and resolved to research SIPPs in more detail.

In the long run it may not be the best decision I’ve made but I begrudge paying even £25 to the FA now he’s got my back up. Many, many thanks to The Escape Artist for his enlightening post Is your Financial Adviser screwing you?  for making me think.

 

*I figured it might get up to £15k-£30k in thirty years time with a monthly payment of £25p/m

**I worked it out at 2.5% inclusive compared to 1% on my company pension and 3% on my ‘old’ pension

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