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Answers to YOUR Questions

See what's bugging others. 

And what our experts say.

Can you advise me on the best approach when looking to invest in a product that offers compound interest? I’m thinking about funds rather than bank accounts. I also have 4 different pensions on the go. Is there merit in keeping these separate to diversify the risk? Or should I consolidate them into the new scheme I've entered with Aegon. This scheme has a 0.33% charge - is that high or low? Also, what would the tax treatment be for them when I retire? Would they be considered in aggregate by the tax man?

Craig, Clackmannanshire

16 August 2018

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Helena Wardle

Good questions! I'll break my answer into two parts to make sure I address your points.

 

Firstly, on the best approach to investing -

It depends on how long you want to invest for, and how much risk you feel prepared/can afford to take. Investing into funds typically needs a longer term plan, due to the risk that your investment may fall in value as well as increase. If you're not yet familiar with this, then a good starting point would be researching and getting an understanding of the associated risks. Boring Money has some great investment guides available to help you, and there are also Government guides to investing on the The Money Advice Service. These sites offer you beginners guides with easy to read information on how to invest.

Depending on what you are saving towards, you would then need to choose the type of product you want to hold the investment in, to suit your plans.

For example, you can buy different types of investment funds and hold these in different products. ISAs and pensions are both products which you can invest funds into, and both are tax efficient. However, if you are saving towards retirement and can afford not to access the money until then, a pension is typically more tax efficient due to the tax relief you get on this. This is why when you are considering your approach to investing, it’s important to consider what you are saving towards, and what you want to do with the money.

Once you are clear on this, you then need to select the most appropriate investment fund to suit both your goals and feelings towards risk. There are tools available to help you do this, and the Boring Money investment guide talks you through the basics in a simple manner.

 

Secondly, on your pensions -

Consolidation often makes it easier for people to track what they have, and which pension they may get in retirement. However you need to be careful, as some pension contracts may have guarantees or valuable benefits attached which you could lose if you transfer them. The pensions may also have penalties if you transfer the contracts before your retirement date.

On the other hand, some older pension contracts have high charges, which may mean it could be cheaper for you to move it to your new Aegon scheme, as the annual charge of your Aegon pension is low.

If you are thinking of consolidating, you may also want to make sure that you look at what your Aegon pension invests into, and compare this to your other pensions. Sometimes the new contracts could limit your investment options to a few funds - particularly if it’s a workplace pension scheme. Also, if you change the investment from the default fund selected by your employer, it may increase the charges.

Most people just leave their work pensions invested in the default investments, and if the other 3 pensions were set up in this way you may find the investments are fairly similar to your Aegon plan. Your pension statements may not have necessarily have this information, so you might need to contact your pension providers to ask questions which will allow you to compare them with your new Aegon pension. Therefore unfortunately there isn't a simple answer to this question, but hopefully I've helped you understand how to compare between what you have and your new pension.

If you need more detailed advice you may be better off contacting a financial adviser, who will be able to help you understand the options and best approach for you.

At retirement, your pensions should be considered in aggregate by the taxman for your overall pension savings limit, called the Lifetime allowance, which is currently £1,030,000. If your pensions exceed this at retirement you'll have an additional tax charge. You'll see this in the T&Cs on the pension paperwork when you start drawing benefits.

Individually each of your pension contracts should allow you to draw 25% of the value as a tax free lump sum, and the remaining 75% of your pension should be taxable as income, as you draw it. This works in the same way as income tax on your earnings. The tax rate you pay depends on how much you earn from other income sources, and how much your pension income is.

 

I hope this helps,

Helena

Following the announcement of the platform increase at Charles Stanley Direct I think this is an ideal time to review my finances. My ISA started out with 100% in St James's Place, but following new investments and transfers over the last 3 years, I currently have about two thirds of my ISA in funds with Charles Stanley Direct and about one third left with St James's Place. Having outperformed the St James's Place funds with my own choices, I was planning on transferring the remaining one third to Charles Stanley Direct. However the recent announcement in platform price increases at Charles Stanley Direct is making me have a serious re-think. Having less than 250K invested, it seems to put me in the worst position possible, with the 40% increase in platform fees. I also have a private pension that I transferred to St James's Place, and I contribute a small amount into it monthly. Would I be correct in thinking the fees are also high on this, and I could do better elsewhere? Can I transfer into an SIPP for example? I'd be very interested to hear your thoughts.

Gerry, Bedfordshire

15 August 2018

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Holly Mackay

It’s hard to comment without seeing the specifics but here’s a general opinion.

We should take a long-term view of performance, as short-term tests have even shown that my cat Mog could outperform over a year, just by sitting on the logos of the shares she likes! This year for example if people have backed Amazon, Apple and Facebook, they will have done super well – but at some point this will crumble a bit and some lesser-known firms which have been unloved will come back – and so the cycle will turn. So be careful about judging performance on anything less than 5 years, although I know we all do it. Pre tech crash I was the best fund manager in Australia (in my opinion)! During the crash, I realised that I had been youthfully arrogant, and in fact one of the worst!

That said, if you are picking a good mix of funds from around the world and you’re doing OK, then the lower fees you get as a DIY investor can make your long-term returns higher. I am generally negative about St James's Place because they're not clear enough on what they charge, and they can charge very high initial fees or high exit fees. BUT a good adviser will do more than simply pick funds for you, so it depends on your views about the overall service you are getting.

As for Charles Stanley Direct, well yes it’s a 40% hike BUT it’s still a reasonable 0.35%, which is slap bang on the industry average. So they are not taking the mickey here.

I see no reason really why you would not continue with the planned move of the rest of your ISA to Charles Stanley Direct. You could shop around to try and find somewhere for 0.25%, but it sounds as though you have had a lot of change and admin already. I’d pull the ISA into one place, breathe for a year, then you can always move if the service isn’t up to scratch?

Your pension is trickier. I believe – and do check – that St James's Place charge exit fees on pensions which start at about 6% a year, which I hate. This reduces by 1% a year. If so, there’s not much point in moving it today. But there’s no rule to say you can’t set up a SIPP elsewhere and chip into that monthly.

I would on balance leave the St James's Place pension in place until such time as there will be no exit fees – check how long this will be. In the interim, you can set up a SIPP online. You may as well do that at Charles Stanley Direct for convenience. As long as you have more than £30k on their platform, you won't pay the fixed fee for a SIPP - just the ongoing 0.35%, which is OK.

Again with a DIY SIPP make sure you spread investments around geographically. Have some global funds, not just UK stuff. Look at the Best Buy fund lists on Charles Stanley Direct and others such as Hargreaves Lansdown. If you’re unsure a ‘passive’ multi-asset fund such as the Vanguard LifeStrategy range is cheap as chips, will do all the picking and mixing for you, and is a simple and easy way to set and forget.

Hope that’s helpful.

Holly

I was left some money in 2016, and was advised by my bank to get in touch with SOLA, The Society of Later Life Advisers. They put me in touch with a financial adviser, who turned out to be a St James's Place partner. Being a bit naive, I took their advice and invested my money in a St James's Place managed fund, split into ISAs and bonds. That was in December 2016. I have since been reading disturbing reports about St James's Place. e.g. the Which report! My investments have done reasonably well, about 5%. However if I were to encash it would not have gained anything. Should I have concerns about St James's Place? My accountant says they are ok. Should I have found an independent financial adviser, rather than a St James's Place partner?

Glyn, Essex

09 August 2018

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Holly Mackay

My personal experience when talking to St James's Place about fees and charges is that it is a very blurry conversation, and it is ridiculously hard to get clarity on this. One email exchange saw them tell me that they weren’t allowed to disclose fees and charges, or tell me what the costs were “for security reasons”.

For ISAs and bonds, I suspect you paid a 5% initial fee which will have already been deducted. This is very high. You are probably paying about 1.85% on an ongoing basis. Again this is quite high.

My personal view is that their investment funds are run by a very experienced team and can be good. They are a mixed bag though - last report I read, about 40% of the funds had done better than the comparative benchmark since inception. The service is probably OK (depends on your adviser but if you like them and they are responsive, that’s a good start!) But they are pointlessly and needlessly dodgy (a personal view) when it comes to being upfront, clear and honest about fees.

If I were you, I would ask your adviser to give you a clear statement which shows what initial charges you have already paid. Ask them what your ongoing fees are for the funds, ISA and bonds (all-in). And ask them to tell you what any exit charges would be. Don’t accept fudge. Get it worked out for you in £s and pence.

If there are any exit charges, then leaving probably makes no financial sense. (I think they only charge exit fees for pensions, but check). If there are no exit fees, but you have already effectively lost 5% through account set-up – then again, leaving may be a protest vote which comes too late.

Good financial advice can save people a lot of money in the long-run, and protect you from costly errors. Your money is also being monitored and invested by a broadly decent team. So although I think they charge too much and are shifty about disclosure, don’t feel too despondent. But I think you and every single SJP client, has a right to feel bloody angry about the poor disclosure.

Get back to me once you have clarified the fees, and I’ll help you to have a dispassionate look at the alternatives. Ongoing fees of up to 2% are chunky.

 

For anyone else reading this, I would always tend to suggest an Independent Financial Adviser, and do ask them about initial fees, ongoing fees and any exit charges. That said, it’s also a question of who they use to actually run the investments. If you are paying high fees for investment managers who aren’t returning, that is equally bad news.  

 

Jargon Buster:

'Restricted financial advice'

Danny Cox from HL explains the difference between restricted advice and independent advice

There are two types of adviser, independent financial advisers (IFAs) and restricted financial advisers. Independent financial advisers can choose the best product or service available to you from any available in the market. A restricted adviser recommends products and services from a range of providers and not necessarily from all that are available. As with any profession or industry, there are lots of very good practitioners to choose from, whether IFAs or restricted financial advisers. Choosing a financial adviser can be tricky, and it's worth trying to get a personal recommendation. The cost of advice and investments varies, and you should be clear on the services offered, and the cost of these so you can assess the value to you.

A good financial adviser will be able to add value to your situation: this could be by saving you tax, helping you to understand your goals and how to achieve them, helping you to invest according to your needs and attitude to risk, simplify your affairs – perhaps all of these and more.

They will also be able to clearly explain what they recommend and why, the benefits of taking action, the risks, and how much their recommendations cost, before you decide to proceed.

If you are unclear on any of these points or are concerned in any way, in the first instance you should go back to the adviser who arranged your investments for you.

Personal Finance | Budgeting | Saving

How can I pimp my credit score?

Sonia, Greater London

09 August 2018

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Holly Mackay

There are many ways to repair your credit score and this article from This is Money is very informative www.thisismoney.co.uk/money/cardsloans/article-1585131/Improve-credit-rating-history-score.html

 

As is the following detail on the Money Advice Service website: www.moneyadviceservice.org.uk/en/articles/how-to-improve-your-credit-rating

 

Good luck.