Perking Up Past Pensions
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As I explained in one of my earliest Fool articles on pensions, my approach to retirement planning has been somewhat haphazard -- and that's an understatement!
Although there are several largish holes in my pensions CV, after almost two decades of paid work, I do have a few modest pensions to my name.
Two are defined-benefit schemes (also known as final-salary schemes) with former employers, both of which are financially secure firms. My retirement income from these schemes is based on my years of service and my salary when I left, so they are the only guaranteed company pensions which I possess. Hence, I plan to leave these well alone!
In addition, I have a couple of defined-contribution (alias money-purchase) pension plans that I've been weighing up recently. With these schemes, the size of my pension pot depends on how much has been paid into the scheme and the accumulated investment returns. When I retire, these funds will provide me with an income -- possibly in the form of an annuity, which is an income that is paid until the recipient dies, although I'm no fan of annuities.
The larger of the two money-purchase plans relates to my employment at the Fool between 2003 and 2005, when I left its employ to become a freelance writer. Thanks to contributions from me, The Fool and the taxman, plus investment gains, this Stakeholder pension has grown to a fair old size. What's more, it's a low-cost plan, with an annual charge of just 0.7%, so it compares well with its rivals.
Rather embarrassingly, I'd all but forgotten about my smaller pot until I received my first annual statement in years. This pension relates to a short period of employment in 1991, during which time I built up the princely sum of £250 in a private pension. Lord only knows how the provider tracked me down, but find me it did!
After fifteen years, this second pot has grown to around £600, which equates to a feeble annual return of roughly 6% compounded. Alas, thanks to inferior investment performance and high charges, this pathetic pension company has failed to beat cash on deposit, despite investing in stock markets worldwide! Naturally, I'm giving this firm the sack, so I've been looking for a new home for this pot plus my Stakeholder fund.
I checked the comparative tables issued by the Financial Services Authority to see whether I could find a personal or Stakeholder pension with ultra-low charges. However, none of these particularly appealed to me, as I don't fancy paying £22,000 to £46,000 in management charges over the next 25 years or so!
Therefore, my search for a low-cost vehicle for pension transfers has taken me in the direction of SIPPs, or self-invested personal pensions.
A SIPP is simply a tax-free wrapper around a group of investments which are chosen and managed by an investor, with or without the help of professional advisers and investment managers. In many respects, SIPPs are similar to other pensions, but the crucial difference is that the investor makes the investment decisions and, as a result, enjoys more freedom, flexibility and control.
So, in order to reduce my management charges and boost my investment returns, I've decided to transfer my existing money-purchase pensions -- and make extra contributions -- to an ultra-low-cost SIPP.
For the record, after studying more than eighty different SIPPs (groan!), I've plumped for the award-winning HL Vantage SIPP from Hargreaves Lansdown. This has no set-up fees, no or low ongoing management fees, low share-dealing charges, plus it offers big discounts via the HL fund supermarket. If you can find a cheaper SIPP, then please let me know via the Give feedback button below!
More: Learn more about these and other issues in our Retirement and Pensions area.
Disclosure: Cliff did some paid writing for Hargreaves Lansdown last year, but this hasn't affected his objectivity in any way.
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