03 May 2017
Anna is in her early 40s. She lives in North London with her fiancé and three children, aged 15, 12 and 1. She owns her own home, but has a huge mortgage on it. She has just left a steady job to go freelance.
Her previous employer provided her with a generous pension and she’s been paying in for 15 years (smart lady). However, she’s conscious that she hasn’t made any alternative provision since she left a year ago.
She’s also got a Stocks and Shares ISA, which she bought ages ago. It’s done pretty well; she invested £3,000 and its now worth about £10,000. However, she hasn’t added to it for a long time, preferring to put her savings in cash ISAs. She finds it much easier to do this, as she can use her online banking. She’s been meaning to set up an account with one of the investment platforms for some time, but worries that she wouldn’t get enough back to warrant the fees. However, market volatility doesn’t trouble her too much as she’d never put all her money in shares.
Her biggest problem, as for many working mothers, is getting round to doing what she knows needs to be done. She says: “It’s always on the list, but it’s always at the bottom.” She wonders whether an adviser might be the solution to all her problems.
At BM, we’d never knock advice. For many people it can be a really valuable source of information and/or comfort. However, if your financial affairs are straightforward, a pension or two here, an ISA there, the chances are that it is probably more cost effective to use the online tools available via platforms, rather than paying for a financial adviser.
In general, we’d suggest using an adviser in a few key circumstances: if you don’t know much about money and don’t want to find out, it can be worth accepting your fate and signing up an adviser to just do it for you (if you have a decent chunk of money set aside that is). Ditto if your affairs are very complex – second homes, foreign income, income from trusts, a step-family, you might need advice from a professional. Advisers can also be useful to impose financial discipline, making you save. You need to be willing to trust someone else with your money, of course, but for plenty of people the right financial adviser will be worth the cost.
However, for the time being Anna’s finances are reasonably straightforward and she can probably do most of the things you need to do by signing up for a platform herself. You can typically get set up on a platform in less than fifteen minutes. And do the boring admin-y bits of this process whilst you’re watching Game of Thrones at the same time (they all die anyway).
Pension provision is a massive challenge for the self-employed. The former pensions minister Steve Webb, who is now working for Royal London Asset Management, said pensions savings among the 4.4m UK self-employed was at ‘crisis level’. He pointed to Government stats, which suggest that, while 62% were members of a pension scheme in the 1990s, it is now around a quarter. So Anna is not alone, plus she’s only been self-employed for about five minutes, so it’s hardly surprising she hasn’t got round to it yet.
One wrinkle worth knowing is that if your accounting affairs aren’t structured correctly to ensure you’re paying all the relevant NI contributions, you might not even be entitled to the state pension – for which you now need a hefty 35 years-worth of contributions. Notwithstanding her chunky contributions into her former employer’s scheme (clever move!), we’d suggest her first priority should be to check that everything is sorted on the NI front.
From there, it should be relatively easy to set up a direct debit into a Self-invested Personal Pension (SIPP). Sounds complicated. It really isn’t – all the complicated stuff (tax reliefs etc) is mostly done for you by the platform. You will have to pick what investment you put it in – but most platforms have default choices or recommended fund lists. Multi-asset income or UK equity income might be reasonable choices to start off with.
If the platform stuff feels a bit too complicated, maybe one of the newer robo-advisers is an easier way to get going. The key is not to get bogged down in the complexity of it all - a plain vanilla UK share fund (or a FTSE All Share tracker) is a decent enough place to start.
As a final note if you do decide to see an adviser, expect to pay them about 0.75% to 1% of your assets on an ongoing basis (there will be extra fees for investment and pension products) OR about £150 - £200 an hour. Unbiased and VouchedFor are 2 websites which will help you to find an adviser in your area.