Existing Pension Arrangements
Many people have preserved pension arrangements which they no longer pay into. If you have pension benefits you left behind with former employers, or private schemes you are not monitoring, you may find that their value is being eroded in real terms". Unfortunately these are often neglected and overlooked, yet having these reviewed can be beneficial and surprisingly straightforward via our Pension Review Service.
It would be naive to consider that what was once a good investment continues to be so. Poor performance, high charges and scheme rules that are restrictive or inappropriate for current needs all add to the uncertainty.
This service will benefit you if you have:
- A preserved Personal Pension.
- A Personal Pension with a pensions company that may be overpriced.
- A ‘With Profits’ Personal Pension.
- A Personal Pension where the provider no longer sells new pensions.
- A preserved Company Pension with a former employer.
- A Company Pension with an employer who has ceased trading.
- You are reaching retirement and are looking to get the best Pension from your fund.
- Been or getting divorced.
- An interest in finding out more about Self Invested Personal Pensions (SIPP).
Returns on your Pension Fund
Like any investment, there are two key factors that determine the eventual returns. The growth of the money (i.e. investment returns), and the impact of charges.
A pension is merely a tax wrapper, with the performance of the pension dependent upon the performance and quality of the funds they are invested in. Investment returns on many pension plans have fallen well short of what has been achieved in the open market. A recent (March 2008) Money Management review of personal pension funds over the last 5 years showed the best average growth per year for 5 years, after charges, was 44.5%. During the same period the worst performer had averaged a miserly minus 0.4%. Yes minus 0.4% per year. In mathematical terms that means that if you had a fund worth Ã‚Â£10,000 5 years ago, at best and after charges it could be worth over Ã‚Â£63,000 or as little as Ã‚Â£9,793.
With Profits personal pensions have generally performed even worse than the poor performing unit linked ones with little or no bonuses being added in recent years. Many of these funds have already ‘spent’ all or most of their reserves subsidising bonus rates declared to investors over the last few years when falling equity markets have resulted in negative returns to the fund itself.
It is important to ensure that the funds within your pension wrapper are reviewed regularly to ensure they meet your needs are risk profile. Many pensions offer a wide range of funds which can be switched into and out of regularly.
Pension charging structures have changed dramatically over the past few years. Due to the introduction of stakeholder pensions the charges applied to new Stakeholder benchmarked plans are far lower than in the past. Many individuals now find themselves with outdated, poorly priced pension schemes.
The Bigger Picture
Reviewing existing pensions isn’t just about ensuring the performance is up to scratch.
For example, how does your pension impact on your wider situation.
Personal Pensions are usually not subject to Inheritance Tax in the event of your death before retiring. However, inadvertently, there are some key situations where this tax will be applied to your fund on death – yet these can often be identified and prevented very easily.
Another example, is that of what happens to your pension fund in the event of your death.
You may have a pension scheme that has a death benefit attached to it but it may carry restrictive pay-out conditions. The scheme may not pay out to anyone other than legally married spouses, so Common law spouses sometimes may not benefit. In the event that you have been divorced since the scheme began, you may discover that the person you were married to when the scheme started rather than your current partner would benefit.
Most Personal pensions normally pay out the full fund value in the event of death before retirement. However, in some cases it may just be the total paid into your fund.
Rules and legislation relating to pensions have changed over last few years. The 6th of April 2006, ‘A Day’, saw the introduction of sweeping changes to the way in which you can plan for your retirement. These changes will allow you to contribute much higher amounts to your pension, select how the money is invested, and make more personalised decisions on how and when you draw benefits. You can even draw tax free cash and/or benefits, provided you are over age 50, and continue working and contributing to pensions.
You can even draw tax free cash and/or benefits, provided you are over age 50, and continue working and contributing to pensions.
Yet not all existing schemes have necessarily adopted all of these new rules. It may be, for example, that your existing arrangements do not offer the maximum permitted Pension Commencement Lump Sum (‘tax free cash’).