If you’re in the market, you’re looking at reviewing your pension, or even if you never thought about it before, hopefully we can give some people a little bit of information.
How long have you worked in the industry?
I have been at CS Retirement Solutions for quite a few years now. I have been in the industry an awful lot longer, so over 30 years, believe it or not. 1988, when I first joined. I’ve seen some massive changes of that period. I’ve worked for a combination of insurers, banks, building societies as both a financial advisor, mortgage broker, and insurance specialist. So, a good rounded knowledge. I’ve seen a lot of things and hopefully made a lot of dreams come true as well.
There are different types of pensions if you could explain a little bit about your options?
Pensions have been around for an awful long time now, and the one that most people are going to know obviously is the state pension. So, the state pension, which you would receive if you have no other pensions, it’s been around since 1948. I think when they introduced it, they had never envisaged that people will be living as long as they are. The system is going to struggle. It’s currently running at £134 a week. So just short of £600 a month, not an easy amount to manage and live off.
If you’re working, then chances are you’ve probably got access to a workplace pension. Workplace pensions have changed over the years, but now employers have been enforced to make sure that all employees have got access to a workplace pension, it’s progress in the right direction.
Alternatively, we’ve got things like personal pensions, we’ve got stakeholder pensions, and we’ve got self invested personal pension schemes. There’s a whole myriad of different types of pension scheme available. But in a nutshell, you’re either looking at funding your own personal pension, or you’re going to benefit from a workplace pension.
Workplace pensions may take different forms as well, so you’ve got things like defined benefit schemes. There are not many defined benefit schemes about anymore as they are quite expensive to run, and a lot of the risk of the scheme is in the employer’s hands. They are based on the numbers of years that you work for that particular company. You accrue pension benefits based on the number of years that you work there. Generally speaking, your pension that they’re going to pay you is literally for the rest of your life. And as I say, it’s at the ex-employer’s cost, really.
The alternative to the defined benefit is defined contribution. Very much different, in that you’ve still got payments that you’re making yourself going into the scheme, as well as the employer’s payments going into the scheme. But the big difference is now that the benefits are going to be based on how the fund accumulates, what investment returns are of the investment period, and that will all basically result in an investment pot at the end of it that you will then choose to take a pension from. And there’s various ways that you can take that pension. But very different in terms of defined benefit compared with defined contributions.
Why do people often come to you for a pension review?
Often, and certainly recently, a lot of clients are contacting us because they’ve got preserved pensions. So they’ve maybe been with an employer in the past and they’ve maybe been funding a pension scheme while they’ve been there. They’ve left the employer, they’ve gone somewhere new, and they’ve got that preserved pension pot somewhere in the background.
In 2015, the Pension Freedoms Act came into force. That meant that people as early as the age of 55 had access to the pensions where they didn’t have before. So that was a big change. We’re getting a lot of people who are looking at preserved pensions and the pension freedoms at the moment, and they’re certainly good opportunities for us to look and have a review of the pensions, given those things occurring.
People who are approaching retirement and they’re looking for the options when they get to retirement.
Then we’ve got people who are sadly just concerned that they’ve not looked at it yet and they’re now starting to panic that they haven’t got any pension in place. They know they’re going to enter pension poverty before too long.
What sort of questions should someone be asking a pension advisor?
When you do sit down with your advisor, it’s a two-way street, so you’re going to have an open conversation. There’s going to be a lot of discussion taking place.
If you want to sort of position yourself and get yourself organised thinking about what things that you might ask:
What is the advisor going to charge you for their services?
So, that can vary and it will be well-documented in any potential proposals that they do put to you. But again, upfront in advance you can ask that question, and then you can deem whether you feel you’re getting value for money or not.
What documents will I need?
The other thing as well is that there’s a lot involved with looking at people’s existing pension plans. So, I say it’s always a good idea to ask the advisor or the company what documents you’re going to need to get yourself provided with, and what information you’re going to be required to supply at the meeting.
How do you review someone’s pension? What’s the process involved?
There’s varying processes depending on which part of the journey you’re on. So it could be that you’re somebody that’s looking to access a pension fund, however, it might be somebody that’s looking to accumulate a pension fund. Or it may be somebody that’s looking at maybe having preserved pensions in the background and looking at doing some sort of consolidation.
Generally, what we would initially start with is having a conversation and trying to understand the client’s needs, objectives, and goals. Then really set to and start with the analysis stage. Initially, it’s open conversation, trying to gain as much relevant information as we possibly can about what the client wants to achieve from it. It’s individual to them, so it’s all about their life goals, objectives, what current provision they’ve got. Looking to put us in a position where we can do a good set of analysis on that and come back with good advice and recommendation for the client.
We would also strongly recommend an ongoing service to make sure nothing in the plan has changed and we are still on plan to achieve the goals.
Is it always appropriate to transfer or consolidate, or sometimes is it best to keep things where there are?
It’s a good question because there are an awful lot of pensions out there that are preserved pensions. People have lost touch with them. Maybe the pension providers lost touch literally with the pension holders. So again, you need to make sure that you’re keeping in touch with these people.
As far as the transfer process goes, it’s all about analysis. We are never going to recommend transferring or consolidating anybody’s preserved pensions unless it’s in the client’s best interest. There’s an awful lot of analysis we need to undertake before we can say it’s actually in the client’s best interest to do so. That has to be justifiable, and we have to make sure that the client is fully understanding that that justification has taken place before we can do it.
It is possible to go online and have everything transferred without speaking to anyone – is that advisable?
No, not advisable whatsoever. I think there’s huge concerns from the FCA in terms of the numbers of people that are actually taking advice on this matter. So all we can say is that you should definitely speak to a financial planner before you make any decisions like that.
In summary it’s best to just have a chat with someone. It’s really hard to give blanket advice, it depends what stage people are at and what future they’re planning for. It’s worth just picking up the phone and having a chat.