Making a big financial decision such as choosing where to invest your pension pot for the best retirement income can be daunting. Get it wrong and you could be out of pocket to the tune of thousands of pounds. That’s where pension advisers – known as independent financial advisers (IFAs) – come in.

A good IFA can advise you on the best investment strategy for your circumstances and help you understand the tax implications of investments.

Pensions adviser fees can be expensive, so it pays to do some research when you are looking for an experienced pensions adviser that you can trust. Any fees you pay should be worth it in the long run, as a good independent financial adviser will help you buy the right financial product for your circumstances, and also review how your money is performing so you get the best rate of return on your investments. An IFA can also advise you on maximising tax relief and other benefits, looking at your finances as a whole.

There are two types of pensions adviser – independent or restricted.

Pension advisers: independent financial advisers (IFAs)

If you’re looking for pension advice, an independent financial adviser is ideal. The term independent means they’re not tied to any particular company or range of financial services. Instead, they can offer advice on products across the entire market, giving you greater choice and flexibility.

Most IFAs are small businesses or solo operators – and are regulated by the Financial Conduct Authority, which means they have to follow certain guidelines when giving you advice.

Pension advisers: restricted advisers

Restricted advisers may have similar training and knowledge as an IFA but they’re usually restricted to giving advice on a smaller number of financial products. Typically, a restricted adviser will work for a single financial organisation – for example as a mortgage adviser in a bank – and will only be able to tell you about a small selection of products. While they are still regulated by the Financial Conduct Authority, they can’t provide whole of market advice which naturally limits their ability to offer advice that’s truly tailored to your needs.

Always ask an adviser if they are independent or restricted before taking advice.

How can pensions advisers help?

Pensions can be a complex investment and income vehicles, with options that range from buying an annuity that offers a guaranteed income for the rest of your life to a pension drawdown income plan where you keep your pension fund invested in the stock market. Each option has a wealth of products from different companies, different tax implications, and will suit different people. Some options attract high fees or give you the option to pick your investments, so if you’re not confident it’s best to get professional advice from a pensions adviser.

Save more for retirement with a private pension top-up. Read our Private pension top-up guide on how to increase pension contributions and tax relief.

As well as pension choices, a pensions adviser can also review your complete financial situation, helping you maximise income and savings, and reduce paying unnecessary tax or fees. For example, a pensions adviser can advise on savings and investments, tax planning and inheritance tax, insurance, and mortgages and equity release. Check with the IFA first to see which areas they offer advice on and the fees they charge.

How much do pension advisers cost?

An IFA’s fees should be clear and transparent. In the past, pensions advisers were able to accept commission from financial organisations when they recommended a particular product. The upside of this was many IFAs didn’t charge customers for their advice, but the downside was a conflict of interest on the advice they were giving. Since 2012, pensions advisers can no longer accept commissions and instead must charge the customer a fee for their services.

As a result, the cost of financial advice has risen sharply. It’s worth noting that it’s not a blanket ban on commissions. Insurance products, such as life and critical illness, as well as mortgage broking where they find you the best mortgage, can still result in a commission for the adviser. IFAs can also receive a commission for pensions advice.

Pensions advisers typically use one of four fee charging structures. Most offer a free consultation meeting to explain their services and costs, and to see if they can help you. Use the meeting to get a clear picture of their fees. In ongoing relationships, check these against the savings they’re making on your behalf to ensure you’re making a loss.

Fixed fee – If you need specific advice for a single financial product or decision and won’t need further advice, then a fixed fee is attractive. The pensions adviser should be able to let you know how much it will cost to review your pension options for example or choose the best mortgage for a buy to let.

Percentage fee – In this case, the adviser will charge you a percentage of the amount of money they are advising on, such as investing a lump sum or creating a range of investments. Typically, a larger percentage fee is required for setting up an investment – expect to pay around 2% – and then an annual fee of around 0.5% for managing your investments. Check the level of an IFA’s involvement and what they do for their annual fee.

Hourly rate – This is a straightforward approach where the IFA charges you on a time basis. Expect to pay around £150 per hour of work. Make sure you get a clear estimate of the amount of time advising you will cost, and ask if elements such as travel time are charged as billable time.

Upfront fees – Depending on the fee structure an IFA uses, you may have to pay what is effectively money on account. Most IFAs offer an initial meeting free-of-charge, but if the advice required is complicated, you may have to pay part of the fee upfront.

What to look for in pension advisers

Knowing what to look for when you’re trying to find a pensions adviser is important. As well as some fundaments, such as being regulated by the Financial Conduct Authority, it’s worth asking questions about qualifications, experience and costs.

Are they independent or restricted – If you want advice across the whole of the market and the best product tailored to you, look for an independent financial adviser. Fundamentally, an IFA will work for you as their client, whereas a restricted adviser sees the financial product provider as their client as they are paid a commission or salary by them.

Pensions adviser qualifications – There are broad qualifications to tick off, such as being a Chartered Financial Planner. The basic level of qualification is the QCF Level 4 to be qualified as an IFA, but good IFAs will have a Certificate in Financial Planning. Check when they requalified (IFAs need to requalify each year) and also look for specialisms, such as writing for pensions magazines or being quoted in the media as an expert in a particular area.

FCA regulated – This is a bit of a tick box but check that the pensions adviser is regulated by the Financial Conduct Authority. You can check the online FCA register to check their details.

How do they work – Some pension advisers prefer to meet face-to-face at your home, while others will want you to visit their offices. Many will conduct meetings over Skype or phone – and can email or post advice and reports. Say if you prefer a particular style, and check cost differences, it’s likely to be cheaper if you meet at their office rather than at your home.

Fees – Be clear on how they charge and get an estimate in writing of the likely cost. Ask for the price of additional fees and get an illustration of how much they could earn over ten years by charging a percentage of your money for their advice. The result can be more expensive than paying a fixed fee.

Where to find pensions advisers

There are lots of online resources available to help you find a pensions adviser, but the best starting point is to get recommendations from friends or family. Ask friends who have used an IFA for advice but check that the IFA they recommend is suited to your specific financial planning needs.

There are plenty of directory websites that list pensions advisers:

Unbiased – Operates a freely searchable register of over 27,000 financial advisers, solicitors, mortgage experts and accountants.

Society for Later Life Advisers – Specialises in pensions advisers and experts that focus more on post-retirement finances and later life advice.

Personal Finance Society – Includes a directory of financial advisers who have achieved qualifications such as the Chartered Financial Planner.

Standards International – Lists financial advisers who have more advanced qualifications and are more specialist in their fields.

Chartered Institute for Securities & Investments – Operates an online tool called the CISI Wayfinder that can put you in touch with financial planning businesses and IFAs.

Financial Conduct Authority – This is the register to check that the pensions adviser you are considering using is actually registered and regulated by the FCA.

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