Will handing hundreds or even thousands of pounds to afinancialadviser boost your pension fund - enough to pay for itself? Thisisa question pondered by millions of savers as they enter thefinal years of their working lives.
Advisers justify theirfeesby claiming their services more than compensate forthecost. But as a major report onthefinancialadvicemarket published bytheFinancialConduct Authority found last week, a notorious history of misselling in Britain has left today's savers very sceptical about whetheradviceisworthtaking.
Many people are also increasingly confused about their retirement options, giventhechanges that have been made to pensions in recent years. There are a number of different "advice" options available, butthefeescharged andtheservices offered vary enormously. We look at themost common options below, so you can findtheservice suited to your circ*mstance and your budget:
Free guidance
Your first port of call in most circ*mstances should be free onlineadvice. A good place to start aretheGovernment's free services, Pension Wise andthePension Advisory Service. Pension Wiseisspecifically aimed at over-fifties approaching retirement. People can book a telephone, or face-to-face, appointment to discuss their retirement options.
For savers looking for help with pensions it offers information online, andtheoption to set up a web chat with a specialist.
Both are useful if you're unsure about current pension rules. These advisers can set outthe pros and cons of different options, such as drawdown versus annuities.
However, these services have limitations. Don't confuse them with "regulated"financial advice, in which you have recourse if something goes wrong. These advisers will not recommend products or suggest what course of action you should take. As both are free, customers have nothing to lose using these services as a starting point, then paying for any additional help, if it's needed.
Will it pay for itself? It's free, so there's no risk of losing money.
Robo-advisers
There's a new type of pension adviser ontheblock - new ''robot advisers'' that use computer modelling to help you make important decisions about your retirement.
Customers complete various online questionnaires: about attitude to risk,financialcirc*mstances and how long they plan to invest. These answers are fed into computer programmes which will directthecustomer to an appropriate model portfolio.
Companies offering these investment services include Nutmeg, Money-on-Toast, Rplan and Simply EQ.Thecost varies but most charges are less than 1pc - for this computer-drivenadvice, plus investment charges on top.
Nutmeg for example charges 0.75pc, but it runs its own portfolios (investing in low-cost exchangerecommend traded funds) so customers pay just 0.19pc in fundfees. By contrast, Rplan charges a 0.35pcfeefor selecting a portfolio of funds, then 0.61pc in underlying investment costs.
Thisischeaper than a visiting a traditional adviser. But customers should rememberthescope oftheadviceismore limited. Most robo-advisers can only help customers build an investment portfolio; they won't tell you whether you should be investing in an Isa or pension, or give guidance on retirement income.
And some companies are takingtheidea of robo-advicea step further. Last year LV=,the insurer, launched a new tool called Retirement Wizard, which, for a one-offfeeof £199, can recommend a retirement-income plan fortheover-55s.
Theadviceisfully regulated, as decisions are based onthecustomer'sfinancialposition and attitude to risk. For example, it might recommend taking a lower income to preserve someone's fund for longer. This may sound astonishingly cheap. But thereisa catch. To executetherecommendation thereisa further charge of around £499.
Getting cost-effective and more focusedadviceisn't easy, but this may be about to change.TheGovernmentisconsulting to see if advisers can offer low-cost "simplified"advice.
Thisislikely to be offered by banks and other providers offering similar online robo services in due course.
Will it pay for itself? It should be cost-effective for most investors, but those with more complex finances may need to pay for additional help.
Fullfinancialadvice
Independentfinancialadvisers (IFAs) are authorised to give youadviceand suitable pensions products (such as annuities or drawdown products) and investment options (such as funds or individual shares). They can build you a full retirement plan incorporating tax planning, investment and long-term budgeting. You can also pay them to monitor your finances on a regular basis and adjust them accordingly.
Fully comprehensive services like this are offered by major reputable pension providers such as Tilney Bestinvest, Hargreaves Lansdown and Fidelity. You can also find a list of fully regulated IFAs through websites such as unbiased.co.uk.Financialadvisers are now required to disclose advicecosts in advance, and separate these from investment costs. But comparing costs isn't always easy: some advisers charge hourlyfees(usually around £200 per hour), others levy a one-offfeefor specific tasks.
According to Unbiased, an initial review costs £500 on average. Those looking for pension adviceat retirement can expect to pay around £1,000 for help investing a £100,000 pension fund. Thisfeedoubles if they don't have a clear idea what they want to do with their retirement savings, meaningtheIFA has to spend longer helping them.
Billy Burrows, an independent pension expert, saidtheamount customers benefit from advicevery much depends on what they could have done on their own. Some may make very poor decisions withoutadvice, which could leave them worse off inthelong run, he said. Customers buying products through an IFA sometimes get preferential rates on products such as annuities. Alternatively, an adviser may help them reduce their pensions tax bill significantly, in which casetheadvicewill easily pay for itself.
Mr Burrows said: "People may not have considered alltheoptions open to them. An adviser will highlight those options, which won't necessarily bethecase with simplified robo services.'' Rowena Griffiths, a charteredfinancialplanner at Female First Management, says whether people will "break even" fromadvicedepends on age and circ*mstances. She said: "Most 30-year-olds have access to a company pension, so won't needadvice."
But, she says: "It's a different matter at retirement. We have people with complex 'S32' policies full of jargon like 'GMP revaluations' and 'cash equivalents'. A websiteisunlikely to explain what these are or what they are potentiallyworth, but an adviser can digest and clearly translate this for you."
Will it pay for itself? Thisismore likely to be cost-effective for those with more complex financialaffairs and/or substantial savings.
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