Asking for a friend who knows about as much as I do about pensions - very little. She has c 180k in an aviva magnet fund pension which has not been added to for around 5 years. Her accountant then took out an aviva compass stable pension in around 2017 which now has 120 k in it. Currently she is self employed with her own company and a salary of around 40k pa. She is now 54 and is wondering whether to add significantly to the compass stable pension pot ? She cannot recall why the accountant ceased the magnet fund. How much could she add to this pension fund in the coming years. Her retirement age on both products is 60. If she added 25k per annum that would bring the smaller fund up to around 270K. Would this be permissable on a salary of 40 K? She could increase her salary significantly as the company is doing ok. How much could she expect from the combined pots of 450K at retirement. If she took a 50 K tax free lump sum, then that would leave 400k in an AMRF ? would this give only 16k per annum (4%) ? Any advice please as she has no knowledge of the rules or even if these products are a good investment. Also can you notionally 'retire' at 60, collect pensions from the two pots and still work ?
Aviva pensions - advice re contributions
- Thread starter Susie2017
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She should ask. There might be a reason which will determine whether or not she can contribute more. Or, the cynic might suggest it's because there was more commission for writing a new product.
If her accountant is the broker on these policies, he has earned a few thousand in commission at this stage. If they're not delivering value to your friend, they need to go somewhere else. Ideally an independent broker where they can pay a fee rather than the broker being rewarded by commission. Someone like @SBarrett of this parish.
I don't understand people who blindly trust the person who calculates their taxes to also look after their financial investments for them (and I'm an accountant!).
How much commission ? Is the commission paid as once off payment or is it an ongoing thing. She writes the cheques to the accountant not aviva. Is this usual ? She has no idea why the first one was stopped. How much would it cost to get independent advice ? With not many years to go to pension age is it too late to go changing things around ?
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They should have disclosed that. I understand in year 1 they'd receive a percentage of regular contributions. Then ongoing they could be getting upwards of 0.5% of the balance every year.
Your friend has 300k invested, so I'd imagine they could be earning 1,500 + per annum.
Here's a link to Steven's fees page (as an example):
Fee Only Retirement Advice | Bluewater Financial Planning
We offer fee-only retirement advice and in some instances, we can be paid by commission. We will discuss both options to best suit your needs.
Sorry, I was thinking about this again.
Looking at Aviva fund X Vs Aviva fund Y is looking at the wrong thing.
Your friend owns their own company, and it sounds like there are funds building up within the company?
This is where they need to ask their accountant for proper advice. You should only leave funds in a company when the funds are needed within the company or there's a tax strategy in place. What's the exit plan? How will they get funds out, in a tax efficient manner? Is the plan to avail of some form of entrepreneur relief?
Get the accountant to come up with a plan, document it, and then confirm every year that it's still a valid plan.
As part of that tax planning, a pension vehicle should factor. The accountant should be calculating the maximum amount that can be put into a pension every year.
If the accountant isn't coming up with a competent tax plan, and explaining it clearly, then they need a different tax advisor. They'll pay for themselves many times over, so don't be worried about paying someone good 2,000 or 3,000 for proper advice.
Then a separate question is what vehicle to use for that pension.
They need to ask accountant (they should already have disclosed all of the following information):
- do they only deal with Aviva, or can they provide other options.
- for current plan, what's the Allocation Rate (for every 100 euro your friends pays, how much is invested)
- What's the Annual Management Charge on each fund
- why do the have 2 separate pensions
- why did accountant recommend funds they did, and how frequently are they assessing the fund allocation (I'd expect an annual review, with the client)
- are there penalties to move the funds elsewhere (if there is a high commission, there might be)
Looking at Aviva fund X Vs Aviva fund Y is looking at the wrong thing.
Your friend owns their own company, and it sounds like there are funds building up within the company?
This is where they need to ask their accountant for proper advice. You should only leave funds in a company when the funds are needed within the company or there's a tax strategy in place. What's the exit plan? How will they get funds out, in a tax efficient manner? Is the plan to avail of some form of entrepreneur relief?
Get the accountant to come up with a plan, document it, and then confirm every year that it's still a valid plan.
As part of that tax planning, a pension vehicle should factor. The accountant should be calculating the maximum amount that can be put into a pension every year.
If the accountant isn't coming up with a competent tax plan, and explaining it clearly, then they need a different tax advisor. They'll pay for themselves many times over, so don't be worried about paying someone good 2,000 or 3,000 for proper advice.
Then a separate question is what vehicle to use for that pension.
They need to ask accountant (they should already have disclosed all of the following information):
- do they only deal with Aviva, or can they provide other options.
- for current plan, what's the Allocation Rate (for every 100 euro your friends pays, how much is invested)
- What's the Annual Management Charge on each fund
- why do the have 2 separate pensions
- why did accountant recommend funds they did, and how frequently are they assessing the fund allocation (I'd expect an annual review, with the client)
- are there penalties to move the funds elsewhere (if there is a high commission, there might be)
Wow thank you very much. I'll pass all that on. Is there a list of independent financial planners ? No exit strategy on the company was ever discussed. The amount going into the fund was dropped from 24 k pa to 17k pa in recent years. Even though the company showed an increase in profits every year.
Your friend needs to ask. It might be something they never asked for before, and they only engaged accountant to complete their annual tax returns.
If the planning aspect is not forthcoming, they probably need a new accountant.
I'm basing this on what you've said, which might be slightly different to the reality of the situation.
Dave Vanian
Registered User
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Yes, assuming that it was a company contribution.
At retirement she can take 25% of the fund as a lump sum. The lump sum is tax free as long as it's <€200,000. There's another method of calculating the tax-free lump sum but I'd say 25% of the fund will be better for her.
If the Normal Retirement Age on the pension scheme is 60, yes.
No. As has been said above, if there were high commissions, there may be penalties for her to move the existing funds. She needs to find out. If she is planning to put more money into pensions, she should understand what she's doing and what she's being charged (by both the accountant and Aviva) before she adds anything further.
One of the problems with current commission disclosure regulations is that they don't include company pension schemes. So while it would certainly be good practice for the accountant to disclose what he's being paid from her pension funds, it's not a legal obligation. If he didn't then it's a perfectly fair question for her to ask - how much money have you been paid in commission since this started?
No. Each of the pension companies offer their sales channels a menu of options to choose from, which includes a range of different commission options. In this case, the accountant would have chosen from the menu how much commission he wanted to be paid from your friend's pension.
The fees apear high for independent financial advice. Are they tax deductible ? Do these pension plans sound a little risky for a 54 year old ? Will aviva discuss them with her directly ? She could increase her salary to 80-100k pa for the next two years. How much can she put into the compass stable pension ? if she increased it to 25 k then that would give around 450 at retirement age of 60. So around 8 k a year after lump sum of 50 k. Not great to live on until getting state OAP at 4% pa. Could she change retirement age on the products and work on until 65 ? Is that allowed ? That would give 525k in the pot or 475k after taking 50 k or 19k pa, if I’m correct.
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I'm as guilty of thinking this as anyone else, but it's the reason that commission and charges are so high.
Let's say proper advice costs 1,500. Your friend has 300k invested. If they can reduce fees / improve performance by just 0.5%, they'll have paid for the fee in the first year. And benefit for the rest if their life.
People don't like paying transparent upfront fees, but are happy enough not to have a clue what fees are hidden in their investments.
Accountant has not come up with a detailed plan. Has disclosed his commisions but has recommended that the management of the pension be transferred to another agent who has sent her an e mail asking for a signature to take over the agency whilst admitting that he doesn’t know anything about the two pensions as yet. He is looking for a signature to take over the agency without first speaking to her. It’s a bit odd.
@Susie2017
Out of interest, what scale of commission and ongoing fee have they disclosed? Are we talking 5k or 10k+?
Your friend needs to find an advisor that they are comfortable with. Not someone her accountant has potentially sold the business to. They can find an advisor, and then transfer the agency to them.
I'm also repeating my suggestion that they also need a new accountant / tax advisor.
Out of interest, what scale of commission and ongoing fee have they disclosed? Are we talking 5k or 10k+?
Your friend needs to find an advisor that they are comfortable with. Not someone her accountant has potentially sold the business to. They can find an advisor, and then transfer the agency to them.
I'm also repeating my suggestion that they also need a new accountant / tax advisor.
Accountant says he got 1700 for the duration of the first pension and around 500 as a once off for the second. The guy he has suggested has written and is very keen to meet up etc and get agency on the pension. In his e mail he has suggested the friends first self directed platform. He says that she can invest much more money from the company now that it needs a hands on approach as there is only a few years left to retirement. He is also keen to set up income protection and life insurance which is not currently taken out. She will definitely look for independent advice.
Yikes. It's hardly worth his while if that's all he gets!
Have you checked if the accountant / firm are on the Central bank register of intermediaries? Or did someone else set it up, and he just got an introduction fee?
She needs to especially watch out that she's not losing money just moving between Companies. There needs to be a clearly understood benefit of moving to FF, not just because it's 'new business' for the broker to earn commission on. (I'm not always this cynical!). A 'full picture' plan for retirement and getting money tax efficiently out of the company is important. I wouldn't be saying that managing the pension fund itself needs a 'hands on' approach; there should be a plan agreed and the stick to it.
On the Life Assurance side, does she have dependents that she's setting up life assurance for? If she dies, she's already effectively got a 300k life assurance policy in her pension.
Yes the family accountant is on the list of investment intermediaries on the central bank register. Thank you for the link. Yes she is wary of going to an introduced new financial advisor who is already pushing a third product before they have even met. Why not increase the yearly amounts into the compass stable fund. Keep it simple ? She has a husband in the public sector who already has life cover. They have two dependant children who will need secondary school and college fees in the future. They would like the comfort of life insurance in case she died so that the mortgage could be cleared.
Dave Vanian
Registered User
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So he is making recommendations without having met your friend, even virtually?
The Aviva (formerly Friends First) self-directed platform (or SDIO) is fine if you need that functionality. It enables you to invest in all manner of exotic things. If you want or need to. But you need to know what you're doing with it as it's more expensive than an off-the-shelf fund. With respect, your friend sounds like she would be perfectly well-suited to a good off-the-shelf fund or combination of funds. She should ask the advisor why the SDIO suits her requirements better than an off-the-shelf fund and to show her comparative costs of both.
Thank you Dave. Yes she would not be clued in well enough to use a self directed platform. Nor would she have the time or inclination. In relation to the plan for the company funds building up the accountant has stated that it’s not unusual to have funds building up beyond expected expenditure as there is no point in putting it on deposit. He states that on retirement the company could be wound up by ‘way of liquidation or by sales of her shares that would be subject to CGT that could be offset by retirement relief’. It is likely that the business would be passed on to her eldest son, which the accountant has failed to mention or acknowledge as the likeliest possibility. Any thoughts on the accountants financial plan for the company ?