- July 7, 2022
- Posted by: Rob
- Category: Pension
Your pension is likely to be the biggest investment your will ever hold. Making sure it still fits the bill is key to a successful retirement.
Tuesday 26 July 2022 Author: Owen Foulkes
The introduction of auto-enrolment for pension savings in 2012 means that almost everyone will now hold some sort of pension. However, pensions can vary significantly in cost, functionality and service. Ensuring that your pension fits the bill will help to ensure your dreams of a long and prosperous retirement can be achieved.
The good news is that upgrading your pension to a modern plan with all of the features you will need is now as easy as upgrading your car, and it has never been easier to move from the equivalent of a rusty banger to a shiny new electric SUV.
Kicking The Tyres
A failed MOT on your car might provide a sign that it is time to upgrade, but unfortunately there is nothing quite so simple to indicate whether your pension is roadworthy for the long term. However, there are some key considerations to see if your pension is still fit for purpose.
Your first area to look at is the performance of your funds in which your pension is invested. You may want to engage a Financial Adviser to do this for you, as some older (and poorer) pension funds may not want to shout about their performance and may not make their performance figures readily available.
The next area to examine is the pension charges. High charges and poor investment performance can have a significant impact on the long-term value of your pension pot. The development of low-cost pensions and a wide range of low-cost tracker funds mean that any pension with charges higher than around 1% per annum looks expensive and will significantly deplete the final value of your retirement savings.
Switching to a lower cost plan, with a wider range of funds is the single most important change you can make to improve your pension provision but moving to a modern pension plan can also bring additional benefits.
As you may know if you have an old pension, dealing with the providers of these old plans can be difficult, often involving paper-based communication, call centre wait times and poor provision of information.
By moving to a more modern contract, you can reduce your charges whilst greatly improving the service you receive. Most modern pensions can be managed online or via app, allowing you to keep a closer eye of your money and make changes and additions at the click of a button.
Looking Under The Bonnet
Not all pensions are created equally, and certain types of pensions are likely to be best left in place. The first of these would be any sort of defined benefit pension or final salary scheme. This type of plan will generally offer a guaranteed level of income in retirement and losing this guarantee could cause a significant reduction in your retirement income, so in most cases this type of pension should be left in place. Should you have reasons for wanting to transfer out of a final salary scheme, you should always seek expert financial advice before proceeding.
If you have a pension through your employer, the other key area to consider is the contributions that your employer is making to the scheme on your behalf, and whether these contributions could be moved to a new scheme if you choose to switch your pension. Again, the best course of action is to have a Financial Adviser look at your existing plan and offer their opinion as to the suitability of moving the plan or leaving it in place.
Take A Long-Term View
The rise in leasing and personal contract hire means that people now change cars on average every two years. However, many people reading this will have pensions that they have not looked at in decades, and the loss of investment growth over that time through poor investment performance or high charges could equate to tens of thousands of pounds.
Many people may feel that pensions are too complex to review themselves, and for some older contracts this will be true. The benefit of seeking expert advice and having a Financial Adviser review your pensions could mean the difference between a Rolls Royce retirement and working until the wheels fall off.