I recently crossed the £100,000 mark in my employer pension, and I’m in my mid-30s.
I’m in my company’s default fund, though, and I’m not sure if I should be diversifying. I looked at the options available from the pension company, and there are a lot of them with various recurring costs, but I’m not comfortable enough to take a chance on something I might regret.
To help create a more complex portfolio, I would gladly pay for individualized financial guidance, but I’m not sure where to look or how much to spend.
Is it possible to
This is Money’s Tanya Jefferies responds, “A lot of people prefer having a continuing relationship with an adviser, although this comes at a cost.”
That is not appropriate for a one-time task such as this one. But once you get going, you may find that it’s worthwhile to seek out a financial advisor who will examine your assets and future objectives, as well as those of your immediate family, if applicable.
We consulted with two seasoned and impartial advisors to get their opinions on what to do with your job pension.
Henry Tapper is a financial advisor and the creator of AgeWage, a website that evaluates pension plans’ value for money, as well as the Pension Playpen professional network. He responds,
Well done for saving so much money so early in your profession. It’s understandable that you might now wonder if your pot is working as hard as you are. Money produces money.
Default funds are not as bad as they seem. It’s what your pension provider uses to judge you, thus it matters.
The fund is made to accommodate the demands of the typical saver at every point of their saving journey, with charges capped at 0.75 percent.
Although it is tempting to use different money, you are correct to exercise caution. Are your views superior to those of the professionals, and what unique conditions surround you?
In terms of diversity, that ought to be handled for you by default.
The government wants workplace pension funds to make more intelligent investments so that you receive value.
even if it means that the assets they pick for you cost more as a result.
Long-term results should improve as a result of upcoming adjustments. I would therefore be inclined to continue with the default unless you have a strong belief that your financial situation matters.
In terms of advice, I’ll alienate experts by implying that you don’t require guidance on investments.
You have more than 30 years until you reach state retirement age, so paying for alternative portfolio advice will put a premium on the people you designate to handle your finances.
If they can perform noticeably better than your default manager with resources and economies of scale, you should give it serious thought.
But it’s definitely a wise use of time and money to sit down and create a financial plan with a financial advisor. Consider this as a midlife health check-up for yourself.
Quoting a fixed fee for a one-time assignment that won’t bind you to further counsel is a sign of a good adviser. Spend no less on this.
For excellent financial advice, I would expect to pay £200 per hour, and I would also want my adviser to quote fixed costs in addition to an hourly rate.
For this work, you should budget for a four-figure price plus VAT.
The fees of a competent financial advisor will usually be more affordable than those of tax advisors and attorneys.
It is worthwhile to pay for professional advice that is governed by the FCA and supported by professional indemnity insurance.
It’s possible that it will result in a long-term partnership with an advisor, but you need to be clear that this is project work rather than a yearly agreement.
For excellent financial advice, I would expect to pay £200 per hour, and I would also want my adviser to quote fixed costs in addition to an hourly rate.
Generally speaking, you want to be wary about allowing advisors to deduct their fees from your investments.
Although the fee may not seem like much, even 0.5% to 1% of your wealth may end up costing more than a fixed fee.
While it is true that this helps you avoid VAT, your adviser may argue that it is more cost-effective for them to collect their fees in this manner; yet, it might be preferable to pay VAT rather than be forced into a long-term agreement.
Certain advisory businesses have a lock-in period, which is acceptable if you use an adviser for the rest of your life but not worth the money if you only need assistance sometimes.
In response, Justin Modray, director of Candid Financial guidance, says: Let me start by asking if you actually need guidance.
As long as the appropriate “managed” style funds that pension providers offer roughly match your comfort level of risk, you shouldn’t have any trouble incurring large losses.
Put simply, this refers to combining exposure to stock markets—which often yield better long-term returns but also more volatility—with investments that are more cautiously structured like corporate bonds.
Though these are the most popular, you can add other kinds of investments as well.
Since you have plenty of time to ride out any bumps in the road until retirement, you can probably afford to take the risk of having a large exposure to the stock market at your age.
In contrast, someone who is almost retirement age and intends to purchase an annuity as a lifelong source of income would likely want to exercise much greater caution.
From’safer’ huge blue-chip enterprises to highly speculative start-up ventures, the stock market offers a very wide range of investment opportunities. Of course, you can also invest in a wide range of areas and industries.
The majority of pension plans offer funds managed by investment managers who select which companies to purchase, which helps to ease the process.
There are two types of mutual funds available: those that merely follow an index of stocks, and those managed by active managers who place wagers in an attempt to outperform the index.
However, selecting between them can be a laborious task with little assurance of success because active managers frequently fail to outperform the index.
If you prefer to select funds on your own, index-tracking is probably a wise choice because it minimizes the possibility of error.
To make sure you have a good worldwide spread, think about combining several, or pick a fund that has a good variety of index-trackers in it. Additionally, index-trackers are typically less expensive than actively-managed funds.
The case for hiring a professional to choose your funds is that they can assist in matching the level of risk you are willing to take and look for active managers that have the potential to outperform the index.
While the latter is random because no one has a crystal ball and experts don’t always get it right, the former offers potential value.
It may be difficult to locate an expert who can provide you with assistance on a one-time, cost-effective basis.
Even if what you’re asking for is quite simple, the adviser will still need to spend time gathering and documenting facts because advice is strictly regulated.
You might have trouble finding one who will comply because, to be honest, it will probably be less profitable for them than taking on a client they will care for over the long run.
It is advisable to inquire with your employer about pension counsel or advice, as some offer their staff access to it.
If not, don’t be scared to select your own funds; with a little research and common sense, you should be okay.