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During your working life you will probably have amassed a number of different pensions in addition to your state pension. These pensions will be either Defined Benefit pensions or money purchase pensions and these are explained in the graphic below:
Are your pensions in good shape?
There are three easy stepsto see if your pensions are in good shape:
1 Make a list of your pension plans
In addition to your state pension you will probably have a workplace pension or a personal pension and you may have more than one of each. For instance, if you have worked for several different companies you will probably have a different workplace pension for each company. If you are self-employed or have made your own pension arrangements you may have personal pensions.
2 Get a pension check up
If you have set up your pension through an adviser they should review your pension at regular intervals but if you don’t have an adviser you can check your pensions yourself. There are three things to check:
Are you saving enough?
It normally makes sense to pay as much as you can into your money purchase pension, especially if your employer is also paying into your pension plan. It is never too late to pay money into your pension and later in life, when children are less of a financial burden and you have more disposable income, is a good time to increase your savings.
Do you have the right investments?
As you get nearer retirement you should be thinking about how much risk you should be taking. This can be tricky because on the one hand you want to benefit from any investment growth but on the other hand you don’t want to see your savings fall in value if there is a stock market crash.
Are you paying too much in charges?
Most modern-day pension plans have relatively low charges and if you are in workplace pension you will probably be benefiting from economies of scale. However, if you have older pension plans you might be paying excessive charges and you should get an adviser to check this out for you.
3. Consider consolidation your pension plans
If you have a number of different money purchase pension plans you may be better off transferring them into your own personal pension so you have all of your pensions under one roof. One of the advantages is that you or your adviser may be able to arrange a better investment strategy with a bigger single pot compared to several smaller pots. Also, when you reach retirement it will be easier if you only have to deal with one pot. It doesn’t always make sense to consolidate your plans, especially where there are guarantees or special terms. You should take advice if you are not sure.
The technical stuff
Before you make any decisions about your options from a money purchase pension it is important that you check your plan details to see if there are any special terms or penalties. You should ask your pension provider for the following information:
- Current fund value and current transfer value – if these are different it means there is a penalty for transferring
- Where is the fund invested? – if you are invested in equities you may wish to review your investment strategy depending on what you will be doing
- Are there are guaranteed annuity rates (GARs)? – some older policies may have valuable guarantees.
If you have a pension buy-out plan (Section 32 policy) check to see if you have a Guaranteed Minimum Pension (GMP). This is a complex area and normally a financial adviser would find out this information.
Final salary tranfers
If you have a final salary (FS) pension the benefits payable from your scheme will probably be more generous than any of the alternatives. However, in certain circumstances it might be to your advantage to transfer to a personal pension (PP) and take advantage of the new pension freedoms.
If you are considering transferring from a FS scheme to a PP arrangement and the cash equivalent transfer value (CETV) is over £30,000, you must get specialist advice from a qualified pension transfer specialist.
If you want to make the most of pension freedoms you should start planning ahead and make sure your financial affairs are in good shape in the years running up to retirement.William Burrows
Call: 07730 435 657
Leeds Innovation Centre
103 Clarendon Road
LEEDS, LS2 9DF