Your retirement income from a pension is likely to come from one or more of the following and comes with important decisions and challenges
Private pension provision
The most commonly asked questions
Occupational pension provision
All private and most occupational pensions are known as Defined Contribution or Money Purchase contracts. Simply, the pension pot built up to generate income when you stop working is determined by
- How much has been contributed over time – the more that goes in the bigger the final ‘pot’
- How long has the pension been held – liken to a snowball going down a hill, the longer the hill the bigger the snowball
- How much has my ‘pot’ grown by – the better the investment return the bigger the ‘pot’
- Impact of fees – no pension is free and charges are important to consider as they impact final ‘pot’.
- Cheap is often not the best.
Older (and no longer popular due to the potential cost to employers) final salary pension schemes, also know defined benefit arrangements, offer guaranteed income based on length of employment and salary at retirement. Recent adverse publicity surrounding the BHS pension scheme evidences some final salary schemes cannot meet their liabilities. If you are a member of, or have accumulated benefits in a final salary scheme how can you find out what level of pension you will receive, is the scheme in deficit and able to pay me, what are your options?
How do I chooce the best pension provider for my needs?
There are a number of factors you should be aware of when choosing your pension provider
- How much control do you want, should you have?
- Do you have the knowledge and experience to manage your pension yourself?
- Do you want to delegate this important responsibility and will you be able?
- How much information will provider give you and will I be able to understand it?
- How much choice do you need/want with regard to where your money is invested?
- Is 5. important?
- Are fees clear, easily understood and value for money?
Having chosen your provider and pension the next step is to decide how important is it to be kept aware of how your pension is progressing. It is very unlikely decisions made at outset will still be appropriate in 5, 10 or 20 year’s time.
Consideration to the following should be made
- Is my risk appetite the same, should I be taking more or less risk
- Is my pension on target to give me the retirement income I need
- Are original assumptions regarding contribution levels and required income the same or have they changed
- How are my investments performing?
- Can they do better?
- What other choices do I have if I want to make changes?
It is very common to have many different pension plans (both private and occupational) accumulated throughout your career and it can be very difficult to ascertain any meaningful benefit as information is received at varying times through the year
What are your options
- leave and cross fingers should read Do nothing and cross your fingers, hoping pension will provide sufficient income, are within risk appetite, capacity for loss, represent good value and strong investment performance
- Consolidate into a more contemporary contract, with a much wider choice of investment options, more effective reporting functionality to allow you to monitor and be kept abreast of investment returns compared with peers.