It doesn’t matter the size of your pension pot, it’s important to review your personal pension on a regular basis, to ensure everything is still on track to give you a retirement to look forward to.
There’s no hiding from the fact that pensions are uninteresting. Not only are they a guaranteed conversation killer at parties (remember those?), just thinking about pensions makes you feel older than your years. It doesn’t help that the pensions industry as a whole has made dealing with pensions unnecessarily complicated. People are put off by the technical jargon, and find dealing with the whole world of pensions a bit overwhelming.
So, it’s very easy to understand why even the most financially-aware people still view looking after their pensions as an unwelcome chore. It’s far easier to pay them minimal attention, and to simply let them chunter on in the background of our lives, isn’t it?
The problem is that for most people, their personal pension is the biggest financial investment of their lifetime, second perhaps only to their home in terms of the amount put in and the value it should accumulate. At FAS, we’ve been advising people on their pension arrangements for 30 years. Throughout this time, we’ve been reminding people that it’s not enough just to start a pension and then ignore it – just as you wouldn’t buy a house and then refuse to maintain it. You need to give your pension attention, and make careful adjustments every now and then. In other words, if you look after your pension, your pension will look after you.
Why is it important to regularly review any existing pension plans?
When clients ask us to review their existing pension arrangements for the first time, it can sometimes be quite an eye-opener, for them and us. That’s because of three reasons. First, the sheer number of different investment options available within a pension has increased dramatically in the last couple of decades. Second, how you choose to take your pension benefits has changed, and third, the pensions industry itself has become more sophisticated, more transparent, and far more competitive, meaning that pension management charges are fairer and conspicuously lower.
Are you paying the price for staying put?
Often these older pensions are invested in ‘balanced’ or ‘mixed asset’ portfolios that simply haven’t kept up with more modern investment strategies or techniques and therefore aren’t optimised to suit your individual needs and attitudes towards investing. Alternatively, you could be saving into a pension that is performing reasonably well, but where the fees being charged are taking a large bite out of your gains.
As with many products in modern day life, it sometimes feels as if you get penalised for being a loyal and long-standing customer. People in their 20s or 30s are most likely to be benefitting from paying into a pension that has low annual management fees (around the 0.5% mark), whereas people in their 40s, 50s, and 60s stand a greater chance of paying higher pension charges on older, less competitive products. Some of these pensions are charging closer to 2.0% annually. That might not sound like much, but those percentage points can add up to several thousands of pounds. And every pound paid in fees reduces the value of your overall retirement fund.
Poor returns and high fees can really act as a double whammy on a pension, eating into returns and leaving customers with a much smaller pension pot than they could have built up elsewhere. Of course, pensions companies have no incentive to lower the fees on these older, uncompetitive pensions, choosing instead to rely on the inertia from their customers.
Are new pensions always better? Not necessarily
Yet while some old-school pension providers are hoping to cling on to their customers through inertia alone, there’s more competition within the pension industry than ever before. In some respects, it has become almost too easy to transfer your pension from one provider to another. That’s why we think it’s so important to treat the new crop of online pension companies with a healthy dose of scepticism.
These online pension providers might promise a no-nonsense service that comes with low charges as standard, but this also means there’s little or no advice available on whether transferring your pension is the best thing to do. When it comes to pensions, it’s vital to remember that cheap isn’t always the best option. It’s far more important to get value for money, and to talk to a financial adviser who knows the right products to suit you.
Expert advice is particularly important when dealing with older pensions, which often come with lots of potential traps you could inadvertently step into. We can do the work to make sure you aren’t hit with costly exit penalties, or where transferring means you risk losing valuable benefits that are no longer available from today’s pension products, such as a guaranteed annuity rate. We can help to determine whether it is worth merging some or all of your older pension pots with your current one, and to find the right pension to suit your retirement plans and need for income or capital.
Final thought
Spending time to think about your pension might feel like something you want to put off indefinitely, but it really doesn’t have to take long and it could end up saving you thousands of pounds in fees and lower returns. If you think your pension would benefit from a review, the first step is to get in touch and book an initial telephone pension consultation with one of our pension experts. Let us do the hard work, because helping sort out pensions is something we love to help our clients with (even if we usually don’t talk about it at parties).
If you are interested in discussing your current pension arrangements with one of our experienced financial planners at FAS, please get in touch here.
This content is for information purposes only. It does not constitute investment advice or financial advice.
