Unfortunately, there seems to be no such thing as a job for life anymore. This results in people building up various different pension pots throughout their working career. Some of these may be personal pensions, group personal pensions, final salary pensions and many other variations.
Some of the older pensions might not have been reviewed for a long time and could be stuck in poor performing funds or on higher than market average charges.
One of my most common requests is to ‘tidy up’ a clients varied pension arrangements. This is often requested by the client in order to understand their total savings with less administration. It is also an extremely useful exercise in maximizing the growth potential of their funds.
The process involves me gaining access to the existing schemes pension information, and then having an in-depth chat about what the client wants to achieve. Where are they in life now, when do they want to retire, how much income do they need and what’s important to them.
One of the most important steps is to reassess the client’s attitude to investment risk and ensure their portfolio reflects this. Many people choose investment funds based on their risk when they set schemes up but rarely reassess this until retirement, which could have cost thousands in lost growth or over expensive fund management.
Changes to pension legislation in recent years have also made many investment strategies ineffective. Previously the vast majority of people purchased an annuity at retirement. Pension scheme investment strategy was therefore set up to reflect this in so called ‘lifestyle schemes’. These reduced the exposure to the stock market leading up to the requested retirement age. Although this is still a sensible approach for those definitely wanting an annuity, for anyone looking to move into income drawdown, it severely hampers the growth potential of the fund.
If the intention in retirement is to keep the fund invested, there is seems little advantage to hold funds in very low risk assets in the 10 years leading up to retirement (depending on personal risk attitude of course).
A pension consolidation exercise is a good way to keep retirement expectations on track. I use marking leading software to assess both your current schemes and the available schemes in the market. I’ll look at trying to keep ongoing cost to a minimum regarding fund management charges whilst also recommending a well-diversified portfolio of quality investments.