Pensions – have you fully reviewed your options?

When your annual pension statements land on your doormat, do you pop them in the drawer and promise yourself that you will “sort out your pension plans later in the year”?

If you have never consolidated your pension plans, the number of separate pension policies can start to add up. It may only be a couple of legacy pensions or it could be, not unusually, 6 or more pension plans. Just think how many employers you may have had over the years.

Before the government vastly changed the pension environment with the Pension Freedom and Choice Reforms in April 2015, the majority of those reaching retirement age would buy an annuity – an annuity is purchased with your retirement funds to provide a guaranteed level of income for life. However, when the Chancellor at the time, George Osborne, announced ”let me be clear: no one will have to have to buy an annuity”, he effectively handed full control of an individual’s pension finances back to them.

A survey by the FCA found that in the first 3 months of 2016, of those consumers who accessed their pension pots. 49% withdrew their full pension pot as cash. 36% went into drawdown, (where the pension pot will remain invested and an income will be withdrawn as required), compared to only 15% who purchased an annuity. Therefore of those taking benefits, 85% now have the responsibility for their retirement funds; including the performance risk of any invested funds and/or inflation risk where the spending power of the funds may reduce over time; especially likely if keeping the funds in cash.

So why is now the right time to review your pension funds?

Legacy Products. Are the pension plans you hold able to provide access to flexible pension options? What is the charging structure of your plans, are you paying over the odds? Are the investment options available suitable to provide a fully diversified, quality portfolio?

Many older style pension products do not provide the flexibility and investment choice, neither are they the most cost effective product. Many people reaching retirement age will find that the plans they have in place will need to be transferred to enable them to access their pension assets in the way that suits them best.

Lifestyling Options. This is offered with many Group Personal Pensions. It is a process used to help reduce the risk of short-term falls in the value of a pension pot as retirement age is approached. This means that the equity exposure of a portfolio will gradually reduce while the fixed interest exposure will increase in the years leading up to retirement. Lifestyling funds are a suitable strategy if the pension plan is to purchase an annuity to fund retirement, however, research suggests that the majority of those reaching retirement age will not buy an annuity and are more likely to go into drawdown resulting in pension funds remaining invested throughout retirement – is lifestyling appropriate?

Expression of Wish. With pension freedoms also came the change of how pension death benefits are treated. This means that pension assets can now be passed down as an income (either tax free or at the beneficiaries marginal rate of tax) to any individual (as opposed to just a dependent). An updated expression of wish will clearly laying out how you expect any death benefits to be distributed, otherwise this will be at the discretion of the pension administrator.

Reviewing your pension arrangements

Fully reviewing your retirement plans is always going to be a worthwhile exercise; it may be that the product(s) you are currently invested in will not suit your intended retirement plans, the investment choices are unsuitable or not working as hard as they could be for you. Or simply to ensure that your intentions of how any pension assets on your death will be distributed are correct and up-to-date. Reviewing your current pension arrangements may simply provide you with the peace of mind to know that you already have the best solution in place.

Our wealth planners are independent, unbiased and are able to review all of your current pension plans in order to maximise the benefit for you and your future. They will be able to ensure you have the most cost effective solution in place that meets your objectives on how you envisage funding your retirement, but also making sure how you are invested meets your current attitude towards investment risk.