Advice, guidance or a third-way: what's best for retirement

Hargreaves Lansdown has launched a new retirement service

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Trying to tell the difference between pension advice and pension guidance is difficult enough but now there is a third-way being offered by financial services giant Hargreaves Lansdown.

The fund supermarket has launched the HL Retirement Planning Service to fill the 'advice gap' between guidance and advice for a flat rate of £395 plus VAT.

For those of you who didn't know there is a gap, there is, and here's why. When pension freedoms were introduced, so was Pension Wise – the government-back guidance service – it offers guidance. That means it can tell you what your options are for your pension, such as buying an annuity or going into drawdown, and it can also tell you the pitfalls you need to watch out for such as large tax bills and the fact you may run out of money.

For those who wanted a bit more help than that there is full-blown advice, where an adviser takes charge of your pension, tells you what to do with it, invests it if need be and makes sure you don't run out of money. This is a great service, if you have the money and many people's pension pots are too small to justify the cost of full-blown advice.

Filling the gap

Tom McPhail of Hargreaves Lansdown said its new service 'picks up where guidance stops' but stops short of full advice. Confused yet?

Don't be. According to McPhail, the HL service will offer more than just generic pension warning that guidance offers. For instance, where guidance will tell you that you risk a big tax bill by taking all your money, HL will calculate that tax bill for you.

Similarly, guidance will warn you that you could run out of money if you take too much out of your pension but HL will do cashflow modelling that will show you just how long your money will last depending on a number of factors such as the amount you take out and investment returns.

However, the difference between the HL service and full advice, is that the latter will take you through the next steps of retirement planning when you decide what to do. An adviser will tell you what decision is best for your circumstances, such as whether to go into drawdown, how much money you can take and help you find a drawdown product to suit you. The adviser will then invest your money and keep an eye on it for you.

For those struggling with what to do with their pension, the HL service is a cure but it's certainly beneficial for those who need more than a nudge in the right direction.

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