Get The Most From Your Old Pension Schemes
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We change jobs so regularly these days old pension schemes often end up littered about all over the place. Here's a question for you - do you know who all your different pension schemes are with and how much they're worth? No? Not got a clue?! It's easily done, but losing track can lead to losing money, so here's how to get your retirement planning shipshape and Bristol fashion.
I'm afraid I'm guilty too, so I've decided today is the day I'm going to start taking control. I hope you'll join me. Here goes...
How To Carry Out Your Own Pension Review
I've already covered tracking down lost pensions in a previous article. This explains how a tracking service such as thepensionservice.gov.uk can help reunite you with your forgotten pensions.
Once all your schemes are back on the radar, the next thing you need to do is ask your pension providers for a valuation and statement for each scheme.
You should also check out the charges at the same time. Ask your provider for a projection of the benefits you could receive at retirement. These are based on assumed growth rates and don't necessarily reflect how well your pension fund may perform in future. The projections do, however, show the impact of the charges on reducing the fund value, so pay close attention to this.
If your pensions have been around for decades, they will probably be run under older style high- charging structures which could be far more expensive than low-cost modern schemes.
Once you're armed with this information, you'll be faced with these choices:
Leave your pension unchanged
If your pension looks like it's ticking along nicely, then the best decision may be to leave it as it is. You could even resume contributions if you're particularly happy with it and the scheme allows you to.
But how can you tell if your pension fund is performing well? I suggest you treat newer schemes differently to older ones. The chances are your pension will be invested in shares*. Shares have had a pretty rocky ride in recent years which means relatively new schemes may not have produced much capital growth or may even be posting a loss.
Unless it looks like bad fund management - if a fund has performed significantly below its peers for example - rather than the impact of poor stock market performance overall, it may be sensible to allow the scheme some time to recover its losses before you consider moving it.
But if the scheme is older and it still hasn't achieved much of a return, then it may be time to consider changing how it is invested. This leads me on to option number two.
Leave your pension where it is but switch funds
Pension providers usually offer a range of investment funds for you to choose from. If you're not happy with the funds you've got, you should be able to switch to new funds. But watch out for any switching charges and limits on the number of switches you can make plus the annual charges levied by any new fund(s) you want.
Some pension fund ranges can be extremely limited. If none of the pension funds on offer impress you, consider option three.
Transfer your pension
If your pension fund is underperforming, then it could be time to transfer to a completely new pension scheme. There's a lot to be said for consolidating all your old schemes into a new, improved one. It's a nice, simple approach. On the other hand, you may prefer not to put all your eggs in one basket.
Let's assume your pension is invested in UK shares. Historical data shows the UK stock market returns around 11% a year on average, so alarm bells should start ringing if your fund has done significantly worse than that. Certainly if the pension has posted lower growth than say, a decent savings account over a number of years, then you may be able to do better elsewhere.
Ask the pension company concerned to provide past performance data specific to the investment funds you hold in your pension. You should be able to see how the funds perform against benchmarks and other similar funds. You should also look at an independent source of data for pension funds such as Trustnet. The same applies if you're just planning to switch a fund rather than transfer the whole scheme.
With a bit of research you should get a good idea of how your pension is doing. If you feel you can access better funds elsewhere then you have the right to transfer but this is not a decision to be taken lightly. Here's a few issues you must think about first:
Will you lose specific benefits if you transfer your scheme?
For example, some older style schemes include guaranteed annuity rates which are often far more generous than standard annuity rates. Read: Increase Your Pension Income by 48% to find out more. Or perhaps you have an old occupational scheme where the income you'll receive when you retire is linked to your salary and could be more valuable being left well alone.
How much will the transfer cost you?
Some older style schemes may charge a heavy penalty if you transfer which could mean it's actually better to leave the pension where it is. If you have a pension which invests in a with-profits fund then be particularly careful about this. Make sure you check all the costs involved first.
Pensions can be a very complex matter. If you feel at all out of your depth then it's a good idea to ask an independent financial adviser for help. Once you have taken control of your retirement planning - or enlisted the guidance of a professional - why not give your pensions the once over every year from now on? A yearly review is a great way of making sure your retirement provision is still on track by the time you retire.
* Those of you who are close to retirement may wish to move your pension assets out of shares to protect the value of your fund. Take a look at How To Protect Your Pension for more help on this subject.
More: Pick This Pension Or Lose Out!
