Revealed: the cost of financial advice at retirement

Getting professional financial advice on your pension will set you back almost £3,000, on average, exclusive Which? research on the charges you could face to plan your retirement reveals.

Which? surveyed more than 100 financial advisers in May this year to uncover the different ways they charge people for a variety of retirement scenarios.

Our research found that, on average, financial advisers would charge £2,897 to consolidate multiple pensions worth £150,000 into a single plan. The biggest charge we found was a whopping £6,000.

Furthermore, Which? found that just one in five (20%) advisers publish the full details of their charges on their websites for different scenarios - making it tough for consumers to know in advance what fees they could face.

In retirement, you might need to consider your investment strategy and manage a portfolio for the first time. Many people are, unsurprisingly, daunted by the intricacies of retirement planning and require professional help to make the right decisions

Here, Which? explains the cost of advice at retirement, and whether the free alternatives are worth considering.

• Our full investigation appears in the September 2018 issue of Which? Money magazine. Take a trial for Which? Money for just £1 for two months today.

How much does retirement advice cost?

We presented five retirement scenarios to 102 independent financial advisers to gauge their charges.The results are detailed in the table below.

We show the average charge from the responses to our survey, the lowest quote we received, and the highest quote we received, all in pounds and pence.

Most advisers (79%) charge an upfront fee which is calculated as a percentage of the amount to be invested, with an average fee of 2.7%.

A similar proportion of advisers (87%) charge in the same way for ongoing advice and annual reviews, at an average rate of 1.3%.

In the wake of the pension changes of 2015, a request for advice about taking a 25% tax-free lump sum and then setting up flexible income drawdown will have become increasingly common.

Upfront fees varied considerably for this undertaking. For a pension pot worth £150,000, the average cost was £2,383, or around 1.6% of the total pension, and the highest amount quoted an eye-watering £4,500.

Transferring multiple pension schemes worth a total of £150,000 into a single self-invested personal pension (Sipp) produced the highest average quotation from financial advisers at £2,897, or 1.9% of the pot's value.

However, nearly one in four advisers would want £4,500 or more for this work.

Even a relatively straightforward requirement to turn a pension pot worth £100,000 into retirement income incurred average charges of £1,837, or 1.84% of the retiree's fund.

Find out more: read our full guide to pension and retirement advice.

Not all financial advisers are upfront about costs

Our survey of advisers also probed how transparent they are about their costs.

Only 20% of advisers have full details of charges on their website with fees for different scenarios. A further 34% published rough costs or a key facts document outlining some fees and charges.

This leaves nearly half of advisers (46%) with absolutely no information on their website about their charges.

If you call an adviser to discuss costs, you'll likely to have a more positive experience. Most advisers (87%) said they would provide a rough idea about how much advice is likely to cost during their initial telephone enquiry, and of these the majority of advisers (62%) would do it without being asked.

Find out more: read our guide to finding a financial adviser.

Can I get free advice at retirement?

If you're unwilling or unable to pay for financial advice, you can get free guidance, in some cases 'personalised guidance', from a number of government-provided services -Pension Wise, The Pensions Advisory Service (TPAS) and the Money Advice Service.

We used undercover fieldworkers to make a number of calls to the services in June 2018 asking for assistance with plans to cash in a £100,000 pension to pay off an outstanding mortgage and to consolidate three pensions into a single plan.

Pension Wise

Pension Wise was set up in 2015 to coincide with the introduction of the so-called pension freedoms. You can have a conversation over the phone (which we opted to do) or face-to-face, but you must be over the age of 50 and have a defined contributionpension.

Despite the current eight-week wait for an appointment, our mystery shoppers eventually dealt with well-informed call handlers who asked personal questions and then covered the chosen retirement option in detail.

The calls followed the same broad format, lasting about 45 minutes - questions about the consumer's finances, health, family situation and pension provision, followed by points to consider with the preferred option, and finally an overview of the alternatives.

In our scenario, the call handlers had some insightful observations about the tax liability if you take a pot in one go, even working out how much exactly you would pay in tax, and also gave clear warnings about potential scams.

The Pensions Advisory Service

Callers to The Pension Advisory Service (TPAS) can get straight through to someone to discuss their question. Our first call about cashing in the pension was fairly succinct, with the caller told to contact her pension provider, phone Pension Wise or seek financial advice.

The other telephone call was more productive, with tax implications discussed and the dangers of having no alternative retirement income highlighted.

Conversations about pension consolidation were again quite brief. However, some key considerations around the flexibility gained by keeping the pots separate, the potential loss of benefits and possible transfer penalties were outlined by TPAS.

A point about managing separate pots effectively in the post-2015 world was particularly insightful.

The Money Advice Service

The Money Advice Service covers all financial issues, with phone menu options for debt, pensions, benefits, home/mortgages and 'other'. If you choose pensions, you're connected to someone at TPAS.

We chose the mortgages option and explained we wanted to pay off our home loan by cashing in a pension. Speaking to a financial adviser was immediately suggested and some help given to find one.

By their nature, the guidance services featured above will have their limitations. Call handlers can outline options and provide impartial guidance (sometimes 'personalised' to reflect your individual circumstances), but they can't provide financial advice or recommend specific products.

Should I pay for financial advice?

While the costs may seem high, paying for professional advice could be an invaluable investment - especially if you have little experience investing.

A financial adviser has the tools and experience to help you plan for a future without work and make sure your savings last throughout your retirement.

Here are some things to consider:

When should I see an adviser? An adviser can add value when you're considering complex products, such as pension drawdown or investments, or significant decisions in life, such as retirement or arranging care, and don't have the time, knowledge or confidence to make decisions yourself.

Is there a minimum amount of money required for advice? It's slight misconception that only people with substantial wealth should get advice. If you're charged a set percentage of your fund value it can prove cost effective.

That said, some advisers do require a minimum amount of investible assets - we found 31% of financial advisers in our survey required £50,000 plus, while 20% required £100,000 plus.

Are other sources of income important? Yes - the more guaranteed income you have, for example from a final salary pension or an annuity, the better you're positioned to take some risks with your savings or cash from other pensions.