Hiring a financial adviser is a serious business, it could be the start of a lifelong relationship , for many people it is.

But the financial model for advisers assumes that most clients will have an annuity value, that means you consenting to there being an advisory charge on your assets which pays the adviser an annual (annuity) income and creates embedded value for their business.

In theory, this offers a tax-efficient means to pay for advice where the financing is from tax incentivised products and VAT is not payable.

Most advisers won’t lock you into such a model and there will be contractual break clauses which mean that such an arrangement usually makes sense.

In this article , I am writing as a “retired financial adviser”!

Should I get one-off financial advice to help diversify my £100k pension pot from its default fund… and how much will it cost?@Tanya_Jefferies + @henryhtapper + Justin Modrayhttps://t.co/F7YXQ62NHS

— This is Money (@thisismoney) November 30, 2023

Sticking with your workplace pension

I was asked by the Daily Mail whether I thought taking control of a pension pot and having it in a self-managed arrangement was a good idea/

This becomes rather more of an issue if the “pot for life” Treasury proposal, becomes a reality. In theory, the workplace pension becomes “your pot” , rather than the pot chosen for you by your boss. While purists will say this was what the personal pension was supposed to be, in reality, very few people convince their new employer to pay into their pot. A recent ombudsman ruling shows what happens when this goes wrong“.

So your workplace pension is typically “yours” so long as your employer is paying into it and then becomes a “deferred or stranded” pot, something you need to go back for at a later stage of life.

This is frustrating if you have taken time to understand your pension and it is understandable that people – like the person I wrote to in the Mail article, want to put matters in the hands of an adviser. Many people will by-pass advice but use a consolidator like Pension Bee to take back ownership of the workplace pension.

In my response , I hint at the fact that workplace pension providers (of whatever hue) are required by law to treat the money invested the same – whether the pot belongs to someone actively saving or someone who has left the pot to grow organically.

There is a misconception , possibly stemming from the phrase “frozen pension ” , that the pots of people who leave are treated differently. This is no longer the case, they do not have higher charges, you can pay further money into them and you have the same fund switching and at retirement options as you had when you were at work.

What is more, you enjoy the economies of scale created by a large collective pension and  the services of either the Pensions Regulator or the FCA who make sure you are getting value for money.

In theory, the need to set up a separate pot , managed by you and/or an adviser, should be minimal. In theory, you should be able to sleep well at night by sticking with your old provider.

Remember, if you opt-out of a workplace pension , your employer is under no obligation to pay into your chosen scheme. Losing the employer contribution is much more likely to put at risk your future pot than can be achieved by self-management (even with a good adviser in tow).

Sticking with a default

A separate but related question is whether to stick with your workplace pension’s default fund (the one you got put in if you did not opt for your own choice) provider. You can get a better outcome using alternative funds and the people who have will tell you about how right they were to take control.

Almost all the workplace pensions offer a choice of funds (the exception is NOW pensions who have – after more than a decade, decided to offer fund choice from next summer).

What you won’t hear, is the tales of those who chose to go their own way and lost out. Typically, people who lose on bets shrink like snails at the memory.

There are many people who object to investing in a default on issues of conscience. They may (like me) object to investing in companies profiting from extracting fossil fuels, they may not want to break Shariah principles by investing in banks that profit from usury and so it goes on.

And there are people who are confident that they can read markets better than the markets themselves and bet against the received ideas – inherent in the default fund. These contrarians can be genius or they can be mad but it’s generally accepted that all these types should be accommodated within a workplace pension – with funds to match their views.

Advice on your workplace pension

This brings me back to where I started. Many people will want to get a view on the decisions they have or haven’t taken on their money and will want to pay an adviser for a view on whether they have or haven’t got value for money from their workplace pension.

If you want a truly independent view, you must not give the person giving it , any incentive to get you to switch to a pension he or she might profit from.

This goes back to the need to pay a fixed fee for the first piece of advice and not make that fee contingent on you using the adviser’s services going forward.

But as Justin Modray, who also contributes to the Mail article points out

If you want advice, finding an adviser who will cost-effectively provide this as a one-off may prove tricky.

It should be getting easier as the Consumer Duty requires advisers to provide value for money for the service they offer but many advisers do not quote fixed fees for early stage advice, claiming that to advise means getting a holistic view of your financial situation which costs a lot of money (a paraphrase of Justin’s reasoning).

Personally, I don’t think you need to pay a fortune for an assessment of a workplace pension – its default and its fund options. The question of suitability is more complex, requiring an assessment of your attitude to risk, your future plans and all the rest.

If you want the full Monty, then you may well want to fully engage with your adviser to provide you with ongoing wealth management and financial planning and that is best paid for from your funds via “adviser charging”. Your adviser will tell you how it works but it may involve moving your money out of the workplace pension.

But if all you are after is a Midlife financial MOT – to make sure that what you are investing in is fit for purpose – feel free to drop me a line and I’ll direct you to the right adviser.

Remember, the Pension Plowman is a retired financial adviser.

henry@agewage.com