Michelle has a few pensions but doesn't think about them very much. Simply having them there means the box is ticked, but is that really the best strategy? With no idea of a retirement date, there may still be plenty of time to give those savings a boost.
Confidence level: 5 out of 10
"I don't check what I have often - well, if at all, really - but when I have checked in the past they seemed OK. The balance seems to be rising, at least. That's all I really ask!
"I do wonder sometimes if I've missed an opportunity though. I don't know when I want to retire yet so I've probably still got a lot of time to build up the savings. But I wonder if I should have made more of a plan. Or brought all the pensions I have into one place.
"My husband is very wary of financial advisors so we seem to be just bumbling along and I am not sure if this is the right approach. Getting a financial assessment is going to be costly and may not provide any better results. Urghh! Any advice would be welcome!"
My pension planning question...
"I have a number of pensions accumulated from various jobs. They seem OK but are we missing an opportunity by managing them this way?"
Answer by Rachel Vahey, AJ Bell Youinvest
Senior Technical Consultant - Meet the experts
The good news is you are actively thinking about your retirement. Now could be the right time to figure out how much pension wealth you have so far built up and how you could convert that into the lump sums and/or income you need in later life.
Your first step – which you have already done – is to work out what pension plans you have, which provider or scheme they are with, and what they are worth.
As you have several different plans, there could be some practical advantages to consolidating them into a single one. The obvious one is it’s easier to manage all your pensions in one place – one point of information means you cut down on paperwork. It’s also easier to set and manage an investment strategy for one plan. It also means it may be simpler and quicker to access your pension money when you first start to draw benefits (https://www.boringmoney.co.uk/learn/articles/pension-prep-5-things-to-do-in-drawdown/).
You could also lower your charges by consolidating, particularly if you have an older-style pension plan. In these older plans the negative effect of high charges and poor investment performance could seriously dent your financial plans. Transferring to a newer type of pension can’t guarantee a better investment return and higher pot sizes, but more investment choice and lower fees will give you a better chance of achieving that.
However, you should always be careful about transferring plans and do your homework beforehand. If you have a final salary or defined benefit plan, then it’s usually not in your best interests to transfer. Even if you have a defined contribution plan it’s worth checking the terms of the contract as some come with valuable guarantees which could be lost on transfer. Others may also have exit penalties which could erode the value of your pension if you leave before a set retirement age. You also may lose your employer pension contribution if you transfer your workplace plan.
You could also consider increasing the amount you pay into your pension, depending on your current financial obligations. Pensions benefit from valuable tax breaks (https://www.boringmoney.co.uk/learn/investing-guides/product-guides/private-pension/) from the government meaning an additional 20% is usually automatically added to your pension. If you are a higher rate or additional rate taxpayer you receive even more tax relief. You could also check out if increasing your contributions means your employer increases theirs as well. At the same time check the investment strategy for your pensions and whether it aligns with your objectives.
These are all big questions which you may need some help answering. You will need to think about the value of your pension plans and both how and when you want to take that wealth out in your later years. You usually have the flexibility to be able to take pension income in a way to suit your needs, but there will be tax implications and other factors to consider.
One option is to get in touch with Pension Wise (https://www.pensionwise.gov.uk/en) who can give you guidance and help understanding your pension options and making these decisions. However, they cannot recommend a course of action. To get their help you have to be over 50 and have a defined contribution pension plan.
Alternatively, a regulated financial adviser or planner can help you work out what to do and recommend the best solution for you. This advice could go beyond how to consolidate your pension plans, and focus on whether you are on the right track for a comfortable income in later life by looking not only at your pensions but your other wealth as well, for example property. (They can often do a lot of the legwork for you as well in terms of paperwork.) To find a financial adviser ask friends and colleagues for recommendations – this might help allay your husband’s concerns - or check unbiased.co.uk (https://www.unbiased.co.uk/), vouchedfor.co.uk (https://www.vouchedfor.co.uk/) or the moneyadviceservice.org.uk (https://www.moneyadviceservice.org.uk/en).
The information in this article is for information purposes only and is not a personal recommendation or advice. Tax treatment depends on your individual circumstances and rules may change.
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