Don’t miss out! Your Pension could be worth more!
We all know the importance of regularly reviewing retirement provision as part of your long term financial planning. This should include all the pensions that you have accumulated over the years in different schemes, including old company pension schemes you were a member of in previous employment.
Transferring old pension schemes can provide significant benefits, but to ensure it is in your best interests, a thorough analysis needs to be conducted by a Qualified Pension Transfer Specialist (that’s us!). Pension transfers can be complex, and whilst one scheme may be suitable for transfer, another may not.
This article outlines some of the key factors you should consider in conjunction with your Pension transfer Specialist before making the decision to transfer. A useful checklist is provided at the end of this article to help ensure you’ve considered the main factors before making a decision.
What could a Pension transfer mean for you?
Managing your Investments
As your life progresses and you get closer to retirement, your views on risk and your investment objectives are likely to change. Typically, when younger, you are more likely to accept a greater degree of risk in order to build up your pension fund. As you get closer to retirement, you may want a lower degree of risk to consolidate what you have built up.
It is vital that you regularly review your pension so that the investment content meets your retirement planning objectives and is in line with your attitude to risk.
You need to be aware what investments options are available within your current pension, as you may be able to switch without the need to transfer completely to another scheme – which is likely to mean additional costs to you.
Of course charges will affect the return on your investment and in turn the potential pension income you receive in retirement. It is vital you consider the charges you are currently paying and are likely to pay in the future, should you remain in your existing pension scheme or transfer to an alternative pension scheme.
The lowest cost options, such as a Stakeholder pension may not necessarily be the most appropriate, as there may be pension schemes which carry higher charges but could offer greater choice and flexibility and therefore be more suitable for you.
There is also the initilal cost of transferring from one pension scheme to another pension scheme. For example, sometimes a pension scheme may apply penalties for transferring out which would make the potential gain less worthwhile. In addition, the pension scheme to which you are transferring may have set up costs (our fees for example!) which could impact the overall benefit.
Certain Pension schemes offer benefits that many not be available in your current pension scheme. Whilst you may feel that the cost outweighs the benefits, it is important to think about whether losing a particular option is a good idea as you may need it later in life.
There are many elements to consider, such as:
- A guaranteed annuity rate within your existing pension scheme may well provide you with a greater income than you could get on the open market.
- Retirement income – linked to your final salary.
- nvestment choice – your attitude to investment risk and current financial objectives may not be in line with the current investments in your existing pension scheme. It may not offer the variety of investments that you need or want to invest in. In such circumstances, it may or may not be better to remain in your existing pension scheme.
- Employer contributions – if you transfer out of your current pension scheme you could lose valuable employer contributions, life cover and/or waiver of premium benefit, insured life cover may include a high level of death benefit, including a spouse’s pension.
- Lower potential retirement age
- Guarantees – certain investments, such as the MetLife Retirement Portfolio, carry unit-linked guarantees which provide a guaranteed retirement income, combined with the potential for further growth.
The question you should ask for all of the above is –
Do I need these benefits?
You may feel that the loss of certain benefits (such as security) in return for other benefits (flexibility and control) would make a transfer worthwhile. You should however also consider what you might lose by moving from your current arrangement. This may include:
- If a final salary pension scheme, your retirement income will be based on your salary when you left (and this will usuually be revalued in line with inflation up to your retriement age) – regardless of investment returns.
- If you transfer out of your current pension scheme you could lose valuable employer contributions and other benefits, such as death benefits,spousal and childrens’ pensions.
- Higher tax free cash entitlement.
- Lower potential retirement age.
Simple and manageable means less time and more control
Administration! Pensions can be confusing and it is easy to leave a pension alone once it has been set up, in the hope it will look after itself. But it is important to regularly review your pension, so having more than one can become an administrative headache. Consolidation into one scheme could mean easier and more straightforward administration of your pension provision.
Regardless of what you decide to do with your pension today it is important to review your pension arrangements to ensure they are achieving exactly what you need them to. Your circumstances inevitably change throughout your lifetime and with them, your pension requirements. Regular pension reviews will ensure that your retirement plans will always be aligned to your individual needs and circumstances.