As experienced independent financial advisers, we regularly carry out impartial reviews of clients pension arrangements. Time and again we come across the same issues, each of which can have a significant impact on our client’s retirement fund.
Just to be clear, we’re talking about pensions collectively referred to as ‘money purchase’ schemes. These come in many shapes and sizes and can be referred to as Personal Pensions, GPPs, SIPPS or defined contribution schemes to name but a few. What we’re not referring to here is final salary or ‘defined benefit’ schemes – these schemes work differently.
The earlier pension plan problems are addressed the greater the potential pension fund at retirement. Your pension statements is the starting point to understanding where your money is invested and how your fund is performing.
Once you know this you can start to ask questions and understand what options are available. So it’s time to dust off those old files, find a quiet corner and work through our guide to the three most common pension plan problems and potential solutions.
No consideration of final pension income.
The earlier you understand if your pension fund at retirement will be sufficient to meet your retirement goals the better. It is important to avoid an unwelcome shock as you near retirement age as the time available to rectify the situation will be limited. The earlier you take action the greater the impact will be.
We all know we need to put aside something for retirement but it is often easier said than done. The least we can do is understand the gap that may exist between the retirement we would like and the funds likely to be available to pay for that retirement.
The first step is to collect the information on all the pensions you have. If you have moved jobs several times then you may have several ‘frozen’ workplace pensions. Do you know what happened to your old workplace pension scheme and (be honest) can you lay your hands on the paperwork right now?
Don’t forget to include your state pension entitlement. You can obtain a forecast from the Government website.
You then need to work out what you will need in retirement and make an estimate of any shortfall. You may have other assets such as property or ISA’s to fill any gap and you should bring these into your calculations.
Pension fund eroded by fees.
With a money purchase pension, the amount you get at retirement is dependent on how much you have paid into the plan, how well the investment has performed and crucially how much the charges are.
Large administration fees, unfortunately, used to be the norm with many pensions. You may be surprised at just how much is taken out of your retirement pot for fees on a regular basis. The more that is taken in fees the less available to be re-invested to grow in your fund over time.
It is important to remember, there are many different types of pension charges from providers. You will need to investigate them all to get a fair view of your total current fees.
Poor choice of default investment option.
Many company and personal pensions come with a default investment option. This means everyone who chooses that type of pension from the provider will have their savings invested in a preselected set of companies, shares, bonds and other assets.
Some of these default choices perform well, but others deliver poor results. Just a few less growth percentage points each year can alter retirement income drastically and many people don’t realise they often have the option to alter their investment choice for the better. Ensuring you are invested in funds that are performing in line with expectations is really important.
There are many pension plan problems that can occur and the above only covers some of the most common issues. Armed with policy documentation and the time to work through the issues most retirement problems can be addressed but mistakes can be costly. You may wish to deal with any issues yourself but if we can help give us a call or request a call back using the form below.
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This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action. The past is not a guide to future performance. The value of investments can go down as well as up and you may not get back the full amount you invested. Tax and financial regulations can change. Any figures quoted above are correct at the date of publication.