As experienced independent financial advisers, we regularly carry out impartial reviews of clients pension arrangements. Time and again we come across the same issues, each of which can have a significant impact on our client’s available retirement fund. The earlier these pension plan problems are addressed the greater the potential returns. So it’s time to dust off those old files, find a quiet corner and work through our guide to the 5 most common problems and potential solutions.
No consideration of final pension income.
During our first meeting with clients, it often becomes clear no calculation has been carried out to establish what their final total pension will be. This, in turn, means they have no idea what income they can expect in retirement. It is important to avoid an unwelcome shock as you near retirement age as the time available to rectify the situation will be severely limited. If you do become aware that your retirement fund will not be sufficient to meet your aspirations the earlier you take action the greater the impact will be.
Most people have a set income, and regular unavoidable outgoings, which often means funds available to invest in a pension are limited. Some hard decisions may be required and the closer to retirement date you are when identifying a shortfall the harder those decisions can become.
Pension fund eroded by fees.
Large administration fees, unfortunately, used to be the norm with many pensions. An Office of Fair Trading report found that older pensions schemes were charging savers up to 2.3% of the pension fund per year. That may not seem a lot but grab a calculator and work it out – you may be surprised at just how much is taken out of your retirement pot for fees on a regular basis. It is important to remember there are many different types of pension charges from providers and you will need to investigate them all to get a fair view of your total current fees.
For those 55 and over looking to take advantage of the new pension regulations (download our free guide) a further fee issue is on the horizon. In an interview with the Telegraph, Professor David Blake of City (London) University Business School said ‘If people think annuities were poor value, that could be nothing compared to the cost of flexible pension plans’.
Poor choice of default investment option resulting in poor performance.
Many company and personal pensions come with a default investment option. This means that everyone who chooses that type of pension from the provider will have their savings invested in a preselected set of companies, shares, bonds and other assets. Some of these default choices perform well, but others deliver poor results. Just a few less percentage points per year can alter retirement income drastically and many don’t realise they often have the option to alter their investment choice for the better.
Lack of communication.
During reviews, we frequently find people have not communicated with one or more of their providers for some time. This could simply be due to lost details, changing address or simply ‘losing touch’ with your savings. Do you know what happened to your old workplace pension scheme and (be honest) can you lay your hands on the paperwork right now?
The first step in making changes that will have a positive impact on your retirement fund is to assess your starting point. Collect the information on your pensions, providers, terms, default options and all other relevant information you can find. Making sure you’re on top of things is really important, as it can help to mitigate things like increased fees. Don’t delay! Dig out those old pension details today and get back in touch with your provider.
Consolidation could help.
We often find clients have moved jobs several times during their careers leaving behind pension funds they consider frozen (paid up). The best course of action will depend on what kinds of pension you have, with which providers and how long you have until you retire. Depending on individual pension performance and fees consolidating several pensions can make a significant difference to your final fund. It can also make management of your pension fund significantly easier with only a single provider to consider.
There are many pension plan problems that can occur and the above only covers some of the most common issues. Armed with policy documentation and the time to work through the issues most problems can be addressed but mistakes can be costly. You may wish to address the issues yourself but a better alternative can be to employ the services of an Independent Financial Adviser offering a free pension review.
The information in this article does not constitute financial or other professional advice. You should not take action on the basis of this article without seeking regulated independent financial advice that addresses your specific circumstances.