BEACON WEALTH MANAGEMENT LTD
- Is My Pension Any Good?
January / February 2017
As you can imagine, as a registered pension specialist, I am often asked by individuals if their pension is any good. Given just how many poor ones exist it is naturally a concern for them.
Good or Bad?
Over the years pensions have changed considerably from how they worked, their costs, fund choice and benefits available.
Many if not most, of the older plans are very limiting and have high charges, but some have guarantees built into them, regarding benefits that would be paid out at the end.
At the time these guarantees were nothing special, but today with annuity rates so low, they can now represent great value, depending on your circumstances.
George Osborne’s actions as chancellor almost put the final nail in the coffin of pension annuities, but there is still a little life left in them; and whilst taking one is now rare, they do have their place for a person with the right circumstances. It does, however, mean shopping around for the best rate, as the amount that will be paid out varies considerably.
It is also the case that the lower your life expectancy the better the annuity - so someone who is ill, overweight, a smoker or on medication, will receive a better annuity rate - albeit perhaps for not that long.
Most people we speak to now are forgoing an annuity in favour of moving the pension into a drawdown arrangement.
This is where the fund can be taken how and when you want - be that monthly with a proportion of income tax free, ad-hoc lump sums, or a mix of the two.
Unfortunately most pensions we look into do not allow the flexibility which means the plan needs to be moved.
Individuals are now realising that if they want flexibility in the future, they should seek advice and review their pension now to see if “it is any good”. By reviewing any hidden benefits and charges you will know whether to keep it where it is until nearing retirement, or switch it now to something that may be better.
Final Salary Schemes.
One of the biggest realisations for individuals relates to their final salary pension schemes.
It has in the past nearly always been best to keep your final salary pension and to take the benefits
from it; and for many people this is still the same.
There is a lot to be said for a guaranteed indexed income payable for the rest of your life, and a reduced amount for your spouse.
There are, however, concerns about what happens if your spouse dies before you, or if neither of you live long, because in most cases the pension scheme simply stops paying and keeps the money.
The other concern is where the scheme runs into financial difficulty e.g. Tata Steel and BHS, which could mean a potentially lower benefit.
Protecting Pension for Family.
Recently (in the last 18 months), we have seen an increase in the number of people with large final salary pensions who are concerned about the loss of the fund, and wanting to protect this fund for their children, or even grandchildren.
For the same reason that annuity rates are low, the transfer values of final salary pension schemes are at an all time high.
The sharp rise relates to the Brexit vote on Government Gift Yield Rates.
There are very few of us with the relevant qualifications to advise on final salary pensions.
This isn’t from lack of trying, as many advisers have tried and failed several times.
A new set of lower level exams are now being brought in so more advisers are in place to meet the growing demand.
I am sure this has nothing to do with examining bodies wanting to secure more income for study material and exams, and feel the exams should be difficult, not because I passed, but because
the decision is a huge one, that must not be influenced by anything other than what is best for the scheme member.
Analysing your Pension.
Analysing a pension (of any kind) is not a simple exercise. We have come across instances where a spouse will not secure benefits, because they were not the spouse named on joining the scheme.
Other benefits are also at the discretion of the Pension Trustees, and given most funds are underfunded, and the trustee’s job is to look after the existing members benefit, logic dictates they will be less favourable than before.
For many a pension is their largest asset. It therefore makes sense to seek advice and have it reviewed as soon as possible.
Should you require financial assistance for pensions, savings, investments, mortgages, protection, long term care, employee benefits... contact the team at Beacon Wealth Management Ltd.
Tel: 01480 869466