When did you last review your pension?
If your answer is “I don’t know” or “never” then reading this could change how your retirement looks.
Why is it so important to review your pension regularly?
First and foremost, because you will be paying for as a minimum an annual review of the plan, so it is important your Adviser offers you this service. However, besides, this is money to support you in retirement, so it is vital to review the plan suitability. Most plan holders like to see the current value of the plan, and hopefully that is on an upward trajectory. But not forgetting, a pension plan is to be viewed as a long-term investment, and as such can be subject to performance variations, both up and down. It is also good to see updated projections – is the plan still on target to meet your income needs in retirement, exceed these expectations, or is it falling short? If the latter, what action needs to be taken, increase contributions or take more risks? Talking of risk, another action taken, is to ensure that your plan meets with your risk requirement (or lack of!) with your timescale, and also your capacity for loss (How much can you afford to lose?) Other content of your review is to confirm charges, beneficiaries and the structure of your plan.
I have pension pots with lots of providers, is there a benefit for me to speak with an adviser?
Potentially, although this in isolation may not be a reason – however, one reason for consolidating plans is that generally speaking, the higher the amount invested then the lower charging regime may be imposed by the relevant Life Office. By combining plans therefore, can reduce the charges applicable, which by very nature may then result in a more streamlined proposition with a lower charge resulting in better and higher plan performance
I think pensions are too risky I may just buy an investment property!
I would say exactly the reverse! I understand pensions aren’t everyone’s flavour, but consider the facts – property is an investment, values may go up as well as down. But for me, the biggest driver these days are the cost comparison. Property purchase involves fees for starters, entry and exit, such as Solicitor fees, (increased) stamp duty levels, survey, Estate Agents and potential liability to Capital Gains Tax! All of which means the property has to grow by the relevant level just to break even! That doesn’t make sense – whereas, investing into a pension plan doesn’t involve these costs, in fact on the contrary could result in an injection of at least 20% (Tax relief from HMRC) or maybe even 40% if a higher rate taxpayer! Get the idea….
Are you a sole trader or limited company director without a pension plan?
Start contributing in to a pension plan now! Firstly again, because you have to think about providing for your retirement, as unlike an employed person, there’s no Employer involved who are obligated to do this for you. But by doing so, allows tax efficiency and/or advantages. As a sole trader, once again you will be entitled to tax relief on the contributions at your highest margin rate. As a Limited Company, if made as an Employer contribution then this will reduce the bottom line of your Corporation Tax liability
What are the charges involved?
These are generally two-fold, those applied by the relevant Life Office, and those of your Financial Adviser. The former, will involve some form of ‘Annual Management Charge’ (AMC) which can vary greatly for many different reasons, or for older plans may be ‘built in’ to the plan performance. These charges can be either implicit, or explicit. With regard to charges applied by a Financial Adviser (Pensions do not pay commission) then charges typically will be applied for both implementing, and then maintaining a plan. Charges MUST be transparent, and as an Investor you must also be aware exactly what charges are to be applied, and when, before entering in to a recommendation. These should also be expressed as monetary amounts, as well as percentages. But remember, the best solutions are generally those kept simple, and given that it’s important you understand how your money is being invested, don’t be blinded by Advisers charging high fees for fancy plans that you don’t understand!
Does my pension die with me?
These days, No not at all. In fact, recent legislation has meant far more favourable conditions apply. Upon death, and it’s here that it’s important you’ve nominated a Beneficiary to your plan, as they will inherit the FULL value of your plan, which can either be paid as a tax free lump sum amount (Outside of your Estate) or take the plan again in its entirety on in their right as a pension plan in their own name. And guess what, so long as they have subsequently nominated their own Beneficiary, then this event can go on – and on, and on……. (This legislation may not apply to older plans)