As jobs for life become a thing of the past, workers today are more likely to become members of several different pension plans during their working lives.
This can often result in an overly-complicated ‘bundle’ of plans. It is not surprising to learn therefore that the combined effect of many plans can result in a somewhat difficult to understand and non-coherent investment strategy. Given recent product innovation in the pensions market, we believe there to be a number of possible disadvantages in continuing to hold several different pension plans:
· With no overall asset allocation strategy in place, an individual may be inadvertently exposed to a level of investment risk they are not comfortable with;
· Individuals may be exposed to investment funds that are consistently under-performing their sector peers;
· Regular or one-off single pension contributions may still be incurring ‘bid/offer spreads’, a common feature associated with older style pension plans;
· Death benefits (pre retirement) may be limited to, for example, a return of contributions plus interest;
· The annual renewal dates of plans are likely to be different, making it tricky to understand the total level of benefits already accrued;
· The selected retirement dates of plans may be inconsistent, making it difficult to appreciate exactly what benefits might be available at an individual’s anticipated retirement date; and
· Total annual charges may be higher than those available by consolidating existing arrangements into a single plan.
There are far greater opportunities available to advisers today in order to suggest that a single pension product may well meet the needs of individuals who wish to better understand how to achieve their retirement goals.
By transferring plans into a single ‘pot’, individuals are likely to benefit from a coherent and easy to understand investment strategy, a simple and potentially more cost-effective charging structure, a single annual renewal date and consolidated information from a single source.
It is just as important that advisers apply a process to highlight where consolidation could adversely impact an individual’s pension planning. For example, and this list is not exhaustive, we would give equal consideration to:
· Loss of valuable benefits built up within defined benefit (or ‘final salary’) schemes;
· Loss of generous tax-free cash entitlements;
· Loss of valuable Guaranteed Annuity Rates;
· Penalties upon transfer; and
· Levels of associated costs and charges.
In order to ensure that any given course of action does not disadvantage you, it is important that you seek advice from a suitably qualified independent financial adviser.
Should you require any independent advice relating to your own circumstances and wish to arrange an initial complimentary meeting, then please contact