Cashflow
Having lots of pension pots can be a complete mind field, this is not just the multiple different statements I am taking about but also the different products and benefits that your pension plans might have. Sometimes it’s even complicated for the professionals themselves to understand as This three-step plan could help you understand your pension and make life easier.
Important notes
We hope you find these 3 steps are helpful, but please remember this article isn’t personal advice. If you’re not sure what’s best for your circumstances, ask for one of our financial planners
Step 1 – Gather details of your current pensions
Assuming you pick up a new pension with every new employer, you could end up with numerous different pension pots.
You should have received paperwork over the years, so have a look through and see if you can find any pension statements or investment valuations.
If you haven’t had any documents or they stopped after a certain date don’t worry, there might be a valid reason. For example, you might have signed up to receive your statements online or, if you’ve moved address, you might have forgotten to tell your pension providers. Even if you have a company pension, don’t assume your employer will communicate this for you.
The best thing to do is to log in and see what your pension is worth and check your details are up to date. If you don’t know your login details or haven’t set them up yet, try your pension provider’s website or contact them directly.
If you can’t find any information on your pension and aren’t sure which company it’s with, try using this government link to trace your old workplace pension plan
Once you have traced your workplace pension see if you can find what type of pension plan it is. Look through your paperwork or online statements to see if your pension type matches any of the below.
We’ve briefly summarised how each of these different types works to give you a head start. Lots of these types of pensions will be invested in the stock market, meaning you could get back less than you put in as investments go up and down in value.
- Personal pensions – an individual pension pot earmarked for you. You choose the provider and plan for your contributions to be paid.
- Stakeholder pensions – like a personal pension but limited in its design to make it low-cost and easy to run.
- Self-Invested Personal Pensions (SIPPs) – a type of personal pension that gives you more control and a wider range of investment options.
- Defined Benefit (DB) pensions – will pay you a guaranteed income for life. The amount you’ll get will depend on how many years you’ve been a member of your employer’s scheme, your salary, and the rules of the scheme.
- Additional Voluntary Contribution plans (AVCs) – a pension that you pay into alongside another workplace pension like a DB scheme.
- Executive Pension Plans (EPPs) – often set up by smaller companies for directors and senior employees.
- Old protected-rights pensions – normally a personal or stakeholder pension built up if you contracted out of paying into the State Second Pension or State Earnings Related Pension (SERPS).
Step 2 – Check if your pension has any benefits or guarantees and what its invested in
Some pensions come with valuable guarantees such as enhanced tax-free cash/annuity rates or a guaranteed income. A guaranteed income is particularly valuable as your income will be paid as long as you live, and you won’t have to worry about the ups and downs of the stock market. Lots of these guarantees could even mean you’ll get a higher rate of income or tax-free cash.
To see if your pension has any guarantees, check your pension scheme booklet or key features document. Common guarantees and benefits to look out for:
- DB pensions – like final salary or career average schemes
- Guaranteed annuity rates
- Guaranteed minimum pension
- Protected tax-free cash.
One in five people we surveyed didn’t know whether their pension was invested in the stock market.
Most pensions are invested because the aim is to grow the money paid into them over time. Of course, growth isn’t guaranteed and there’s always the risk that you could get back less than you put in.
You should take the time to learn about where your pension is invested. Check online or look for your pension fund factsheet or Key Investor Information. This will show you the charges you’re paying and how the investments have performed over time.
Ask your provider or get in touch with one of our financial planners who can give you a review of the underlying assets inside your pension portfolio.
Think about whether you’re happy with your current pension investments. You’ll need to consider the charges and whether the aims of the investments line up to your own goals and attitude to risk.
Step 3 – think about consolidating your pensions plans
As a fundamental rule, it’s best to leave any pensions with guarantees where they are.
If you did want to transfer, it’s likely that you’ll need to get advice from a regulated financial advisor. You’ll more than likely lose these benefits if you move the pension to another provider.
For anything else, it’s worth thinking about bringing your pensions under one roof.
Transferring old workplace or private pensions and combining them into one pot could make your life simpler moving forward but please be warned this cannot be your only objective when thinking about transferring out.
The benefits of consolidating are you’ll only have one set of rules and login details to remember. With everything in one place you’ll also have better clarity on how much your pension plan is valued and have better control over where and what it’s invested in
Always best to check with a professional to see if what you are doing is enhancing your current situation and future investments
Get in touch with Simple Financial Planning
Get in touch with us today to help you with your financial needs, our aim is to make it simple for you!