…….. and the world is looking like a scary place, as we continue moving through uncharted territory. However, there are opportunities to be taken whilst remembering the basics of financial planning – including protecting your assets, minimising tax and aiming for growth – do not change a lot.
10 TIPS TO MAKE THE MOST OF YOUR PENSION
Do you want to?:
- Know what your pension is really worth
- Release pension funds now
- Guarantee your fund value never drops
- Access the highest income possible from your pension funds
- Transfer or access your frozen pension
- Transfer or access your Final Salary pension
- Access more than 25% of your fund tax-free
- Investigate a European pension account
- Have your pension funds reviewed
- Get fully independent advice
Introduction
Whilst this will not solve all problems, we think you will find enough in here of genuine use to you.
As fully licensed and experienced pension advisers who work with clients face to face, we can but encourage you to make contact. We are happy to receive a call or email without any obligation on your behalf. In any event, good luck with finding what is right for you.
You can call the office 02380 457889, email sally@buildyourwealth.co.uk, or contact our principle Glyn Williams on 07976 684123 at any time and leave a message. We will call you back.
Know what your pension is really worth
Even something as apparently simple as this can be problematical – not so much in terms of obtaining a figure in the first place but in understanding what such figures mean to you. If you have a "money purchase" contract, which is one that, usually, has "fund values" which may vary in value, then contact your provider and ask fo:
· a fund value
· a transfer value
· fund allocation details
Plus, if you are starting to think seriously about what the funds are worth to you or are considering a transfer then request a "projected benefits statement".
You or any chosen adviser will need this detail to help make decisions.
The TIP is:
To use the above words when asking for information from your pension provider.
Release pension funds now
Many people contact us for this reason. The trigger could be for any number of reasons. Examples are they have reached retirement age, they are in their 50’s and are wondering if they can access funds or cash before their retirement age, they are very ill or have hit hard times triggering a search for cash, perhaps they wish to repay a mortgage or buy a property for their business. We even have expats wanting to access their funds now they have settled abroad.
All cases are different but the starting point is that you can access 25% of the value of a pension fund tax-free from age 55. Then, depending on circumstances, much more may be achieved.
The TIP is:
Tell your adviser what you want the money for and why, not simply that you “want the tax-free cash”
Guarantee your fund value never drops
Many pension holders have been disappointed with their fund values - or even scared when they see the values drop. A simple tip I find myself repeating is that your pension funds can simply be held in cash. The fund will then behave like a bank deposit and will not go down in value. Alternatively, pension holders want to invest for growth but, admitting a low understanding of investment markets, wish to know that they will not lose their capital by the time they retire. This is achievable and we often set up contracts where there is a cast iron guarantee that pension funds will be returned at retirement.
Additionally there is a good or fair chance of the fund growing at between 5-7% per annum, meaning the pension account at retirement could be much larger than the current fund value. If you want this you can get it - do not let anyone tell you otherwise. The downside of course is that the funds will not achieve 10-20% growth, which would mean taking some risk.
The TIP is:
Know that you can arrange your pension fund this way if this is what you want.
Access the highest income possible from your pension funds
There are so many choices here that it is easy to get confused. So back to basics. Assume you wish to take the maximum amount of your basic tax-free cash from your pot (usually 25% of fund value). You are then left with 75% of your fund value to pay you an income, potentially for life. Most people, especially with smaller pots or those who want absolute security, buy a fixed and guaranteed annuity income with these funds. Focusing just on this annuity area, you should note the following:
If you have received an offer of an annuity or pension income from your existing pension provider, it is very likely that you can get a higher income than that quoted to you if you contact someone like us. I say this for the following reasons:
- Other mainstream companies may offer the same contract at a better rate for you – the market changes all the time.
- You may be eligible for an "enhanced annuity", simply because you smoke, have diabetes, high blood pressure etc. If you are more seriously ill, the increased income could be significantly higher from another provider.
- The quotes you are looking at do not exactly fit your needs or circumstances and need to be tailored further. There are so many options available that I have never seen one insurance company supply all the different terms you might consider.
Higher incomes may be achieved in different ways. Instead of buying an annuity with your funds you could buy into a "drawdown" or "unsecured" contract. This is higher risk than an annuity but may pay you a higher income at the outset. It is a serious consideration for some. You even have the option of drip feeding your tax-free cash as income to yourself, making this income tax-free to you. Annuity income or income from the 75% of fund value I mentioned above is taxed as income, typically at 20%.
Always remember, you do have plenty of choices for your unique circumstances. Perhaps this starts to explain why our service is usually face to face. There is so much to get right and it is one of the most important financial decisions that people make in their lives.
The TIP is:
DO NOT accept the first quote you are offered and look for other options or choices.
Transfer or access your frozen pension
Many people have what they see as old or frozen pensions. Often these can be languishing in badly performing funds or are appear too hard to find out the detail of, e.g. old final salary schemes with companies you worked for that have now changed hands or closed down.
Legislation was brought in some years ago which allows you to access these and then, should you wish to transfer, invest as you see fit. But watch out, just because it is old does not mean it is bad and that is where an adviser comes in. One exercise we often carry out is bringing together a selection of old pensions, so that the client has one account and can easily see its value.
The TIP is:
Remember that your pension funds are your money and you have choices and rights to do with them as you wish, wherever they are, within the pension rules.
Transfer or access your Final Salary pension
This could be a superannuation government scheme or, for example, a scheme with a large company like BP, BT, a bank, the post office and many others. These schemes do "guarantee" benefits such as a lump sum and pension for life from a certain retirement age. Watch out though. You really should find out what your rights are.
There was a scandal some years ago when many people transferred their benefits in such schemes to a personal pension, the markets went bad and so did their pension rights. This, combined with the comfortable feeling of a big organisation guaranteeing a pension, means that 1,000’s of people are sleepwalking into not making the most of their pension rights. They are not checking and reviewing what their scheme will give them against the private market every now and again and, most importantly, in the run up to retirement.
Yes, it can be best to leave your pension rights where they are with such schemes but some of the reasons you might move away could be:
- You want your pension rights now at 55 and not at 65 for example
- You are not married but have a long term partner or children and wish them to benefit from these savings. Often the benefits are low, if not zero, for such persons.
- You want to use the funds for your business.
- You like the ideas of receiving a guaranteed level pension of say £30,000 per annum throughout retirement, instead of a starting pension of say £25,000 per annum which then rises with inflation.
The important message is not to ignore such schemes just leaving them as they are without reviewing them. However, any option to transfer has to be handled very carefully.
Step one is to ask your pension scheme trustees for a transfer value and projected benefit statement. Step two is to read what they send to you very carefully, whilst thinking about when you would ideally want the lump sum or pension. Step 3 might be to speak to an adviser.
The TIP is:
Look at the deal you have with your final salary scheme and search for advice on whether you may or may not do better.
Access more than 25% of your fund tax-free
There are instances when you can take more than 25% of the fund. Examples are:
- If your fund is less than £18,000
- If you have an old company pension scheme or a “section 32” contract
The TIP is:
Check if your contracts are of the type described above and ask what the maximum tax-free cash is
Investigate a European pension account
We are currently looking (June 2011) at a European pension account that, in simple terms, looks like it may be significantly better than a UK one. Why? Well you will be aware there are limits as to what you can do with your pension funds. This European account looks to be better on all counts, bar extra charges. The reason this is interesting is that European rules override UK rules in these matters. The arrangement will be for larger funds and we have to finish our investigations, but this is an example of how we continue to look for opportunities for our clients.
The TIP is:
If you have a larger fund (£500,000 plus) ask whether you have access to a European pension.
Have your pension funds reviewed
Straight to the tip here…
The TIP is:
Pension legislation has changed a lot recently and there is a constant flow of different investment options available. For these reasons you really should have your pension accounts reviewed. Even if you have no particular intention of changing your arrangements, paying a fixed fee to an experienced adviser now and again will be worth it.
Get fully independent advice
What does this mean? It means advice you can trust! Our license, as an independent financial adviser, commits us to deal with the full list of companies (not limited to 1 or just a few) and to always supply the best advice for your needs. This means we are not attached to any bank, or insurance company, or investment house, in any way and purely act in your best interests. We would argue that working with an independent adviser is the only route forward you should consider. Then it is a matter of choosing the independent adviser. Experience counts.
This is where we put our hands up and say:
· Our principle has over 20 years face to face experience of pension advice.
· He is fully qualified and has the extra qualifications necessary to provide pension transfer advice.
· Personal client references can be provided.
The TIP is:
Seek advice from the right type of adviser and check they are truly independent and experienced.
An extra TIP
Further support information can be found on the following websites:
The Financial Services Authority www.fsa.gov.uk – This site has a useful consumer information section, accessed from the home page.
Moneymadeclear www.moneymadeclear.fsa.gov.uk – This government site gives basic guidance on Pensions, Investments, Loans, Mortgages, Insurance and the like. You can undertake a financial health check here.
What About Money www.whataboutmoney.info – a section of the Moneymadeclear site concentrating on financial information for younger people.
The Pension Advisory Service www.thepensionadvisoryservice.org – Just for pensions, useful for understanding your state pension entitlement and the associated National Insurance payments.
State Pension Forecast (apply on-line) www.direct.gov.uk/en/Diol1/DoItOnline/DG_182601 – This will tell you what your state pension income will be. It can help you identify any gaps, which you might be able to fill.
