dont understand pensions at all, its all deferred benefits, with profit funds, contracting out etc etc so im a bit lost when it comes to understanding what ive got.
my method over the years has been to just keep everything 'pensiony' thats come through the post and then when i (or my dependants) need it, theres a big pile to 'hand over to someone'.
ive decided now to try and get my head around things, try and understand what im likely to get, what various plans are worth, and whether its worth transferring any to my present pension if indeed thats allowed.
so........ive had 3 different employers in my life. job 1, job 2 and present job 3.
job 1 pension seems to have started in 1991 and gone through different 'takeovers', plus a 'side' pension with someone else when i contracted out, altho i have no idea what this means. so theres mebbes 2 different pensions there? id guess its just frozen now.
job 2 also seems to have 2 or 3 different companies handling the pension over the years, including a different one for AVCs which i didnt pay for long. so a frozen pension again?
job 3 is my present job, and again has been handled by different companies. just to confuse things, even tho its the same employer, theyve given me different payroll numbers for different positions over the years and i have 3 separate policies with them, one deferred, 2 still running (i do two positions at present).
itd be sooooo much easier if the old ones were transferred into current pension, but i dont know if i can, or indeed if itd be a good idea anyway as there may be costs which would decrease the value.
FWIW im doing this to see if i can retire early, so likely values at 55, 60, 65 would be interesting. the old pensions pay out when i retire at 65, but my present pension would i think allow me to leave early, obviously with penalties for that.
so, what do i actually need to do to look into this? find out a current value of each pension and ask if im allowed to transfer? ask for a transfer value? is the transfer value likely to be the same as the policies current value?
or just hand the lot over to a financial advisor and say "heres some wedge, feast yer eyes on them bad boys and tell me what im likely to get when i retire and whether i should move stuff around?"
thanks
If you can't understand the documentation you have then I think it has to be
or just hand the lot over to a financial advisor and say "heres some wedge, feast yer eyes on them bad boys and tell me what im likely to get when i retire and whether i should move stuff around?"
but I'd treat their advice with some caution and not do anything in a hurry or under pressure. If you have any 'Defined Benefit' pensions be especially cautious about transferring them.
Is it better to save £500 a month in the TSB with not much interest or put it into my pension?
Do you already have all the bikes you [s]want[/s] need?
Almost certainly put it in a pension, specifically because you get tax relief on the contribution, i.e. as a basic rate taxpayer you can put in 400 of your salary and the pension scheme gets 500. Better for higher rate taxpayers, 300 from your salary gets 500 in the pot (erm...numbers not guaranteed to be precisely correct).
Almost certainly put it in [u]a[/u] pension
in A pension is key. that doesnt always mean "Your" Pension.
some pensions have piss poor performance and are eroding with fees and bloat
choose wisely - unfortunatly there is no one size fits all though. been looking at this recently for balancing out last years tax bill.
Really loads of factors to consider, I'd find out if they are final salary types or money purchase. Final salary are pretty much being phased out because they are costing so much, if you do have one perceived wisdom is to keep it and not to transfer it into a money purchase. It may be possible to ask for a cash value and it can be substantial as pension co's are wanting rid of the final salary schemes.
Its likely that later pensions will be money purchase, the returns aren't as good but they can be more flexible if you are thinking of retiring early or maybe going part time.
I'm really only starting to find my way around the pension minefeild but I'm not dissimilar to where you are at. My first employer had a superannuation scheme and it'll be final salary, I'll not be transferring it over and will take options on it at the time. My new employer is money purchase which I'm adding to, I'm hoping ot get to a point where I can start withdrawing cash and maybe working part time(this is still a long way away though.
Is it better to save £500 a month in the TSB with not much interest or put it into my pension?
I'd say not, your employer may match your contributions up to a point and your money should be safer as your pension pot increases. My pension investment regularly performs well, certainly better than the bank.
itd be sooooo much easier if the old ones were transferred into current pension, but i dont know if i can, or indeed if itd be a good idea anyway as there may be costs which would decrease the value.
If they are defined contribution ones then it's very simple to transfer them.
If they are defined benefit (final salary style), then generally best left where they are as transferring looses all the guarantees associated with them.
Almost certainly put it in a pension
This. You get tax rebate and then (almost) tax free gains. Way better than a bank account.
My pensions made more money than I was paid last year, thanks to the continuing bull run on the markets. Sadly, they don't do that well every year....
The accepted wisdom is to start a pension as early as possible.
I did this. Sadly the FA who advised us all at work to do this selected a Barings Fund to accept our cash, it still has some cash but my later started SIPP that I manage myself has comfortably more in its pot that the original Allied Dunbar one..
The accepted wisdom is to start a pension as early as possible.
Yep, this is one of mine plotted out over time - in the early years the fund was only worth what I'd put it, but over time cumulative interest has started its magic and its grown and grown.....
[url= https://farm5.staticflickr.com/4424/36269184794_98ce252f0a.jp g" target="_blank">https://farm5.staticflickr.com/4424/36269184794_98ce252f0a.jp g"/> [/img][/url][url= https://flic.kr/p/XfZ43j ]Capture[/url] by [url= https://www.flickr.com/photos/brf/ ]Ben Freeman[/url], on Flickr
The bad news is my oldest pensions (RPI index linked, gold plated final salary) fell into the Pension Protection Fund and is now falling out of the PPF only the index linked bit has been dropped, so it's worth a fraction of what it was 🙁
sadexpunk.
I did something similar to you recently. This is a useful page to describe some options, and shows you some circumstances where leaving it where it is, is the best option.
https://www.aviva.co.uk/retirement/pensions/transfer-your-pension-plans/
(Disclosure: I do work for Aviva, but I'm not in any way related to financial or pensions advice)
The major benefits of having it in one place for me is that now that I'm actively managing my pension it easier to see what going on, and when you want to change your investments, it's much easier to do it in one place.
If I was in your position though I would probably seek advice from an IFA.
The major benefits of having it in one place for me is that now that I'm actively managing my pension it easier to see what going on, and when you want to change your investments, it's much easier to do it in one place.
This is why I consolidated all of mine. Just filled in a form, posted it off and within a couple of weeks the funds were transferred.
Albert Einstein - Compound interest. Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe.
The most important thing I don't remember learning in school.
thanks for the help chaps, think it shows that i need an IFA, so thats the way ill go. just hope that doesnt cost me as much as my pensions worth! 😀
nice one paton, ill give them a try 🙂
thanks
It's complicated. Having just one is not necesarily a good idea (eg what hapens if that company's fund performs badly). To understand what you've got will need a good look at the paperwork. Proper advice but be wary of advisors just trying to make fees.
Be clear about about what type of pension scheme you are a member of; defined benefit or defined contribution.
Check out whether any/all of your schemes allow transfer of benefits on death - and, if so, to whom and what conditions apply.
In general, if you are in a stable and permanent relationship and you have defined benefit pension with a guarantee that dependants (wife or children under 18) wil benefit keep it where it is.
Defined contribution is, effectively, a money purchase scheme.
HMRC will take their share of any transfers out - possibly on emergency code basis which means that the onus is on you to reclaim any tax overpayment.
As for IFAs who specialise in pension transfers/management - be careful. Initial 'consultation' is free but they will give away nothing; when you're signed-up they might get involved in a detailed discussion. Confirm their fees and charging sale before engaging with them. Check their stated level of qualification and experience; are your circumstances representative of their client base.
My suggestion....
- decide what you want to achieve
- get current valuations (entitled to a free one every two years)
- if any of your schemes are defined benefit, do financial health-check on company; apart from all the usual company stuff - trading performance, liquidity, market position etc - check out pension fund status inc surplus/deficit, future funding proposals, investment strategy
- be clear about your personal circumstances and wishes
- be clear about IFA charges (and sundry other charges if you start moving pension asserts around - platform fees, administration charges, advisor fees, annual fee etc); assume min 2%pa unless you move to automated market trackers at c0.2%
- do not transfer from defined benefit to defined contribution scheme
- understand investment strategy and risk profiling
Invest a lot of time in being clear about your circumstances and objectives; invest even more time in deciding what you want to do - and why.
As Jamba said ^^^ it's complicated.
it bluddy is complicated mate, thats for sure!!
My suggestion....
- decide what you want to achieve
i want to find out how much money id get monthly if i retire at 55/58/60/63/65 to make balanced decision on if i can afford to retire early and live abroad.
- get current valuations (entitled to a free one every two years)
so ask each provider what the current value is? isnt that info on every statement each year? along with loads of other figures :-/
- if any of your schemes are defined benefit, do financial health-check on company; apart from all the usual company stuff - trading performance, liquidity, market position etc - check out pension fund status inc surplus/deficit, future funding proposals, investment strategy
how do i find out if theyre defined benefit, just ask them? and id not have a clue on how to health check them or even what the information would mean if i found out.
- be clear about your personal circumstances and wishes
as above ^^^
- be clear about IFA charges (and sundry other charges if you start moving pension asserts around - platform fees, administration charges, advisor fees, annual fee etc); assume min 2%pa unless you move to automated market trackers at c0.2%
yup, id try to find out what any advice and decisions would cost me
- do not transfer from defined benefit to defined contribution scheme
the key here then is to find out what my current pension is, i dontthink its a particularly good one. just to complicate matters, i think any values that i wanted to transfer would be converted to 'years/days' as this pension is based on '30 years'.
- understand investment strategy and risk profiling
not a chance 😀
Invest a lot of time in being clear about your circumstances and objectives; invest even more time in deciding what you want to do - and why.
spose thats what im starting to do now.....
thanks a lot mate
I would avoid using an IFA until you are ready to take you pension. Once you get your head around what you have it's easy to manage
Here's what you need to do
Contact each of you pension funds by phone and ask them for a username and password to access their system
When logged in you should be able to figure out past growth and predicted pension from each fund. It's then possible to move fund around within each company to meet your pension goals
It may cost you money to consolidate funds
I've just gone through this myself, I have 4 funds and it's not difficult if you invest s but if time
Cheers
i did have a look at registering online, but so far ive only been able to do this with the 'contracted out' bit and my current. my oldest pension dont have this facility, neither does my 'interim' pension, altho they say its coming.
but yes thatd be easier.
tanks
Thread hijack...where does one start to go about finding a financial advisor for advice on inheritance tax and capital gains. Need to get advice for my mum and i as she has quite a few assets including a rental property which we share at the moment. Not got a clue about financial matters and as she gets older I think we should get some advice.
HMRC will take their share of any transfers out - possibly on emergency code basis which means that the onus is on you to reclaim any tax overpayment.
No they don't. The fund gets transferred directly between pension providers with no HMRC involvement.
It's complicated. Having just one is not necesarily a good idea (eg what hapens if that company's fund performs badly).
It would be unusual (and foolish) to just be in a single fund, you would normally be split between a few. Pretty much every pension provider has access to 100s of funds e.g. all my company pensions have been split across a range of funds as are my current ones.
@footflaps - I wasn't clear; transfers between providers are not subject to tax but withdrawals are.
For sure get some professional advice. Pensions are just a wrapper around an investment regarding money purchase schemes. It is not just performance that should be a consideration but also charges and risk.
Seek out a Chartered financial planner and you should be ok.
right, been looking at statements and im pretty sure my current two (plus a very small deferred section) are Defined Contribution. the bumph on the back states......
changes in the law introduced by the Pension Schemes Act 2015 mean that members of Defined Contribution (DC) schemes have greater flexibility over how they can access their pension pots from age 55. Transfers to such schemes are now longer allowed from the Firefighters Pension Scheme. This is to safeguard the security of the scheme.A transfer must usually be requested a year before you reach normal pension age.
Think carefully before deciding to go ahead with a transfer - your deferred benefits are valuable benefits that keep pace with the cost of living both before and after you start getting your pension. And they include generous death benefits for your dependants.
am i right in thinking from the quote that its 'desirable' to transfer old pensions to these schemes but its not allowed now? or is it the other way round saying i cant transfer my current pension to a different scheme?
just spoken to one of the other lads who thinks that a DC scheme means theres no investment, that our contributions pay the pensions of retirees now and the young pups pension payments will be paying ours when we retire, is that correct?
off to look at some of my older ones now, see if i can suss those out.
thanks
That sounds like it's a final salary pension (defined benefit) which has indexed linked provisions. You don't want to transfer that as you'll loose the index linked guarantees etc.
Looks like they don't allow it anyway..
Transfers to such schemes are now longer allowed from the Firefighters Pension Scheme. This is to safeguard the security of the scheme.
just spoken to one of the other lads who thinks that a DC scheme means theres no investment, that our contributions pay the pensions of retirees now and the young pups pension payments will be paying ours when we retire, is that correct?
Nope. Defined Contribution means you pay in money and it gets invested in funds that you chose (or they chose for you). If the funds do well, your pot gains in value, if we have a 2008 style crash, your pot could lose 50% overnight and tough tity for you. All the risk is on you and the funds you've invested in. You have no guarantees whatsoever on what you get at the end.
Defined benefit (final salary) are where you pay in a fixed amount into a fund and the fund guarantees you a set pension (often linked to final salary typically each year you buy 1/60th of final salary). If the fund does badly, the employer has to pump in more money to make up any shortfall. These are getting rare now and are worth their weight in gold.
The state pension and many civil service pension have no fund and current pension liabilities are paid from current tax revenues i.e. each generation pays for the pensions of the generation before.
if defined benefit is different to defined contribution, then i think thats wrong isnt it? it quite clearly states DC? FWIW im pretty sure im not on a final salary scheme, im told its an average salary scheme.
just looking at some of the notes ive taken on trying to get hold of various pension providers, and my old engineering pension phone number is for the 'defined benefits team'. thats promising isnt it?
also the statement mentions protected rights and non protected rights, that mean anything significant?
thanks
There is so much wrong in your post, you really do need advice from someone who understands pensions.
There is so much half right or plain wrong information in this thread I despair, it's always the same 🙁
dont worry RB, i wouldnt do anything without proper advice, just trying to get a handle on what ive got and likely options available (if any) 🙂
just looking at some of the notes ive taken on trying to get hold of various pension providers, and my old engineering pension phone number is for the 'defined benefits team'. thats promising isnt it?
also the statement mentions protected rights and non protected rights, that mean anything significant?
You have a defined benefit / final salary style pension, you don't want to transfer this.
Protected and non protected rights refer to the types of funds invested. You'd have to look at the deads of the pension trust to work out exactly what they mean.
Footflaps has a pretty good grasp but specifically 'Protected Rights' relates to contracting out and can be DB or DC.
Footflaps has a pretty good grasp but specifically 'Protected Rights' relates to contracting out and can be DB or DC.
yes, I was thinking of with profits funds...
weirdly enough, the defined benefit scheme from my old engineering days is one that an old workmate has stated hes transferring into a new works 'personal' scheme as hes been told the old works DB scheme is actually losing money year on year.
looking at a recent 'with profits' statement, it says.......
number of former protected rights units - x,xxx
holding value of former protected rights units (£/p) - xx,xxx
number of non protected rights units - x,xxx
holding value of non protected rights units - xx,xxx
a similar pension statement from 2003 has the same layout but the figures are higher, slightly more units in 2003 and higher value.
obviously i cant ask specific advice here, but does this sound normal?
Number of units dropping does not sound normal and it is something I would query. With profits funds are unusual as they have a bonus element along with the change (hopefully up) in price. There could be a perfectly good explanation but I'd be asking
Yes.
Above you mentioned an "average salary" pension. That's another type of defined benefit scheme, just based on the average salary instead of final salary.
One thing to look at when it comes to retirement, you can take up to 25% of the pension value as a tax free lump sum. Very worthwhile considering.
Obviously we don't know (or need to) the actual numbers, but it seems you have a couple of final (or average!) salary pensions lined up, in addition to the state pension, so you should be in a reasonable place.
has stated hes transferring into a new works 'personal' scheme as hes been told the old works DB scheme is actually losing money year on year.
Doesn't make sense....
A DB (defined benefit) scheme has a guaranteed payout, so even if the fund isn't doing well, the company backing it has to cough up and fund the shortfall, so you can't loose (unless the employer goes bust and the pension fund collapses into the Pension Protection Fund).
'new works 'personal' scheme' sounds like defined contribution with no guarantees whatsoever, so much higher risk.
At the end of the day both types of fund (DB and DC) invest in the stock market (or other funds / gilts) so could of equally well in terms of fund growth. The key difference is that in DB, someone else (the employer) is underwriting the fund and will make up any shortfall. With DC there is no one underwriting it, bad stock picks, 2008 style crash, you just loose money....
the old works DB scheme is actually losing money year on year.
As a scheme member this shouldn't be your problem, if the funds are low the company have to pay in more money and you get the pension you were promised. That is why DB pensions are so good, no risk for you. Trouble is if the Co go bust you could be relying on the pension protection fund which is good but I can't remember exactly the level of benefit they cover. (In the past you could have been left with little or nothing, Google Allied Steel and Wire or Mirror Pensions if you want some sad cases)
Trouble is if the Co go bust you could be relying on the pension protection fund which is good but I can't remember exactly the level of benefit they cover.
Current pensioner, pretty much 100%.
Deferred pension 10% cut, fund index linked up to 2.5% per annum.
However, the kick in the teeth is that any contributions prior to 5 April 1997 don't quality for index linking once the pension pays out (I've just suffered this), but do get index linked at up to 2.5% until retirement date.
Thanks footflaps, I was too lazy to Google.
Sadexpunk - I'm in a similar position (albeit I've moved jobs more than you, so have more pensions) and am also going through all this myself.
I found a (hopefully) trustworthy IFA and am educating myself about all the Pension gobbledegook.
At first glance, the language and terminology surrounding pensions is an impenetrable, unintelligible, avalanche of sh1te. I think it's designed to keep normal human beings in the dark!
But I'm having success, simply taking each term / product / point one by one and using Wikipedia, Motley Fool and Hargreaves Lansdown to educate myself as to what the heck it all means (not necessarily to buy or invest in their products).
I'm the same as you sadexpunk, so thanks for starting the post.
I found a (hopefully) trustworthy IFA
Make sure they really are "I", a lot of IFAs aren't really Independent and only offer a "Restricted" choice of products as opposed to the whole market.
Also, if they do recommend any investments, have a look at what the fees are on a few sites such as HL, you might find the bulk discount HL etc negotiate is better than the IFA's chosen platform. The two keys fees are 'initial charge' (cost of buying the units) and then the recurring annual charge (mgmt overhead for running the platform and the fund).
digger, thats a good idea. i often have a few hours to myself at night so may start doing this and see how far i get before i just accept it really is...
an impenetrable, unintelligible, avalanche of sh1te.
😀
footflaps, i hadnt even considered finding a different pension altogether to invest in. maybe a little blinkered but i thought my only choices were keeping as is, or transferring old pensions to current.
im pretty sure that at some point ill be employing the services of an IFA, so thanks for the heads-up on the 'I'.
well, first steps, seeing what advice i can get for free first and have come across [url= https://www.pensionwise.gov.uk/en/appointments ]PensionWise[/url] which seems to be government run and tied in with a gov.uk web address. may be of interest to anyone who fancies a bit of free local advice.
ive made a local appointment, unfortunately not until december, but i figure not much is going to change with my pension in the next couple of months.....
they only advise on defined contribution pensions which i assume my myriad of engineering pensions are, so ill hopefully get a grasp on what they are, how good they are, whether i should leave them frozen or transfer etc.....
in the meantime ill keep chipping away at trying to understand them a bit more as per diggers advice ^^^
they only advise on [b]defined contribution[/b] pensions which i assume my myriad of engineering pensions are, so ill hopefully get a grasp on what they are, how good they are, whether i should leave them frozen or transfer etc.....
These are the ones with no guarantees, you should be able to change the funds they invest in by contacting the provider etc. The key issue to understand in the annual management fees, as these could vary widely and probably aren't as good as a modern [url= https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/contract-based-schemes/stakeholder-pension-schemes ]stakeholder pension[/url] or a good value SIPP. You should be looking for annual fees below 1%. Also, no one will be looking at their performance on your behalf, so the funds they were invested in might not be doing well and no one will change them unless you ask.
Generally, unless they have very low fees, it makes sense to consolidate them to a low fee platform, so it's easier to keep track of it all. Reducing the mgmt fee is important as that is eating away any any growth them make.
This is what I have done with all my old DC pensions - I moved them all to a SIPP, so they were in one place.
thanks for that FF, notes taken and ill be asking about this with pensionwise.
plus trying to find out beforehand exactly what ive got to save time in the appointment.
Just throwing a couple of curve balls into the mix:
1. Transferring out of a DB scheme [i][b]may[/b][/i] be a good move depending on who the scheme is with. Because of the low yields in the Bond market, transfer values, which are calculated using a standard formula are artificially high. Depending on your circumstances transferring DB to a SIPP could work out better, but I would guess in the majority of cases not.
2. Some older DC schemes have a guarantee so it may be worth leaving those alone. I had 3 DC schemes that I wanted to consolidate into a SIPP but left the one with a 4% guarantee alone, as I was quite happy to have a portion of my pot growing at 4% every year.
The pension companies do make things difficult for us plebs to get our heads around, but you are doing yourself a massive disservice if you don't bone up on pensions, and as mentioned above there are plenty of online resources available. It's not rocket science.
Depending on your circumstances transferring DB to a SIPP could work out better, but I would guess in the majority of cases not.
The issue is it is impossible to know if it *could*. With a DB the payout is guaranteed (within the limits of the PPF guarentee). How well transferring DB to DC will pan out boils down to fund choice and how those funds do, which no one can know. Yes you could make 10% pa, but equally we could have another 2008 crash and you loose 50% overnight and never make it back before retirement.
The only way to de-risk performance would be to buy long term bonds/gilts which will have a very low yield, thus no better than staying in the DB scheme (as that is what the transfer value is based on).
The current 10 year bull market for equities isn't going to last forever and there will be a correction at some point and it will hurt anyone holding equities.
I am youngish and am part of my works pension, luckily it is a final salary - defined benefit scheme. However I was thinking this will be all my eggs in one basket, I have actually been paying 50ths and 60ths into it for the last few years as due to age the cost of doing this is cheaper now then when I get old.
I read above someone said it might be worth having two different pensions. Has anyone else done this? I guess a DC would the only option available to me?
If you are contributing to a Final salary scheme and you are contributing enough to at least gain the maximum contribution from your employer then I would looking into AVC's or any other additional contribution you can make. You are unlikely to get anything as attractive as that which your company are offering.
If that isnt feasible then I would invest in a Stocks and Shares ISA then invest as you see fit. Any gains in that pot can be taken tax free alongside your pension when you retire (or anythime you want)
The "downside" to a good pension is that you will invitably pay tax. My pension income is split between pensions and ISA income for that reason.
I am youngish and am part of my works pension, luckily it is a final salary - defined benefit scheme. However I was thinking this will be all my eggs in one basket,
It's a pretty good basket, underwritten by the Pension Protection Fund, so even if the employer goes bust leaving a deficit, the PPF steps in and bails you out to 90% of what you were promised.
I read above someone said it might be worth having two different pensions. Has anyone else done this? I guess a DC would the only option available to me?
You can have as many as you like, you can open a SIPP today if you want. The only rules are that you must keep the annual gross pension contribution less than £40k.
The "downside" to a good pension is that you will invitably pay tax. My pension income is split between pensions and ISA income for that reason.
You only pay tax once. Pension contributions are tax free, but the pension is taxed. Your ISA contributions are from you net salary (after tax), but the fund is tax free. Given you can take 25% of the pension tax free from 55, the tax on pension will be less than ISAs. Only complication is if your total pension pot exceeds the lifetime limit (£1m) in which case the tax rates change.
The current 10 year bull market for equities isn't going to last forever and there will be a correction at some point and it will [s]hurt anyone holding equities [/s] [I]create further buying opportunities[/i] 😉
As I'm sure FF already knows dips in markets are no bad thing if you have the time to ride them out / recover. Your age / timeline to expected retirement are key.
As I'm sure FF already knows dips in markets are no bad thing if you have the time to ride them out / recover. Your age / timeline to expected retirement are key.
It took a long time for the FTSE 100 to get back to 2007 levels, even longer if inflation adjusted....
Transferring out of a DB to a DC now, to then buy equities, would be a very bold move indeed.
I agree footflaps. But if all depends on whether the transfer value outweighs those risks. There was an example a couple of years ago of a 48 year old who would get £1,871 per year at 60 which would increase by £436 per year from 65. His transfer value was £150,812 so even at today's high FTSE that would be a risk that I would probably take and transfer out. You could income draw down £2,000 per year and still keep the capital balance around £150k with a careful investment strategy. The other big variable is inflation, and we are so used to low inflation that a few years of high inflation could make serious inroads into the purchasing power of the transfer out option.
Conversely a colleague at work, 3 years from retirement, has his fund 100% invested in equities. I keep trying to persuade him that this is a high risk strategy. He doesn't want to move to guilts as the yields are lower.....
I'd be shitting myself in his situation.
Although he's probably done very well on that strategy over the last 12 months.
To be fair, I'm much less exposed to equities, but still shitting myself about cocking things up, but that's just a consequence of approaching retirement.
Out of interest, how much of his fund are you suggesting he moves out of equities?
Out of interest, how much of his fund are you suggesting he moves out of equities?
There is no hard and fast rule, but the default rules for Aviva Stakeholder Pensions are (as an example):
From 5 years before your chosen retirement data 75% of your, then, current fund will switch to the Aviva Long Gilt S2 Fund and 25% in the Aviva Deposit S2 Fund
It's all about risk management. A repeat of the 2008 crash could half a fund overnight with no time to make it back up. That would seriously affect your retirement comfort / force you to delay retirement. It took nearly 10 years to make the losses back up after the last crash....
Well I'm basically 100% in equities (plus the house of course) and already effectively retired. No shitting going on here. Well, just the usual.
already effectively retired, No shitting going on here. Well, just the usual.
ie direct into a plastic bag...
DONT TAKE MY ADVISE.
Stay as far away as you can from IFA's - thats free advise they will charge you and keep on charging.
Talk to Hargreaves Landsdown about gathering all your pensions into one place a SIPP and dont put any more money in.
Start an ISA with H&L and just keep putting max annual allowance in until you retire.
Any money you take out of a SIPP is taxed.
Any money you take out of an ISA is tax free - at present.
Any time you have been 'contracted out' is deducted from your state pension.
Any SERPS second pension etc all gone.
Good call though thinking about it.
edit
PS the smart money is investing anywhere but UK at present but everything is over valued. I have been top slicing the gains and just sitting on cash waiting ..........
DONT TAKE MY ADVISE.
+1
Any money you take out of a SIPP is taxed.
Nope. You can take 25% tax free at 55 (or state retirement age less 10 years IIRC).
I have some db pension, among a mixed bag of property, isas and cash. At a transfer value of 40x i may start considering a sell depending on the tax status of the resultant cash. Even at todays silly valuations i could buy a property yielding 5%, double the db performance.
I know its apples and pears, one is guaranteed, one is not....but i could gift away the property whereas the db will die with me.
Tbh i d stay diversified, some will perform, others will struggle.
I have been top slicing the gains and just sitting on cash waiting ..........
Waiting for what?
Funnily enough I've just talk with daughter(14) about pension planning and we've agreed to start her pension now.
There's no substitute for 45 years of compound interest!!
Best Invest also have some useful information and newsletters, even though my SIPP is not with them (I got a good deal on Aegon SIPP platform fees but the portal is awful). I'm no pensions wizz (FF sounds like he knows his onions) but using the sites mentioned in this thread got me up to speed.
I've consolidated my first 3 in to 1 and have just transferred those in to a my SIPP as the even though it was a stakeholder pension the fees were still high and the choice of index funds were low. Most of the fund is invested in the VLS80 index fund. I'm currently sitting on £10k in cash in the SIPP and staring in to the void as the market seems too high, it was going into Fundsmith but I that seams particularly high, now going to drip feed into VLS60.
I recently looked at my wife's pension from her previous job and it's performing terribly, some really bad picks and far to cautious for a 39 year old, let alone when she start at 20.
some really bad picks and far to cautious for a 39 year old,
It all depends what she said her attitude to risk was at the time. The standard model is the advisor asks you to rate your attitude to risk on a scale of 1 to 5 and the chooses a model portfolio based on your choice.
Most people are quite cautious by nature, so get a cautious portfolio. The main thing is to review the funds regularly, say every year, and see how they are doing and the fund is doing overall.
The old adage of transferring to cash/gilts approaching retirement was in the days when you had to buy an annuity, and were hedging against a fall in the market at the wrong time.
In the new world of drawdown pensions, you effectively just transfer your pot into your chosen provider, and keep it invested and compounding. Transferring to Gilts too early means you lose the best years of compound interest on your pot.
It all depends what she said her attitude to risk was at the time. The standard model is the advisor asks you to rate your attitude to risk on a scale of 1 to 5 and the chooses a model portfolio based on your choice.Most people are quite cautious by nature, so get a cautious portfolio. The main thing is to review the funds regularly, say every year, and see how they are doing and the fund is doing overall
I was going to mention the risk attitude, she didn't do that test and a she certainly didn't get the evidence showing the longer the term the more risk you should make. Like many she didn't have a clue about her funds and just filed the annual statement every year without realising what it meant or how she could affect it.
In the new world of drawdown pensions, you effectively just transfer your pot into your chosen provider, and keep it invested and compounding. Transferring to Gilts too early means you lose the best years of compound interest on your pot.
Draw down is not the panacea it's made out to be.
The main reason for transferring to guilts before retirement is to reduce the risk of a market crash (of which we have had many in my lifetime) dramatically affecting your pension.
If you stay in equities using drawdown and we have another 2008 crash just before you retire (or just after). Then your draw down fund could halve overnight.
This leaves you with one of two options, draw down the same amount (in £) you were planning on to retire, but risk exhausting your fund early. Or halve the draw down amount (keep % the same) and live a much less comfortable retirement.
It took the markets a good 10 years to recover from the 2008 crash, so many retirees would die before their draw down fund made back up the losses.
By all means choose draw down over annuity, but at least understand the risks and be prepared to accept the consequences.
Guilts are a trade off, no exciting gains to be had but no major losses to be risked.
FTSE has never done anything like halving overnight. It took well over a year to drop 45% around 2008, and that's comparing the top of the peak to the bottom of the trough, neither of which was sustained for much time. By all means transfer out of equities over a period of time to reduce risk, but the risks aren't actually as bad as many people make out. Being too risk averse costs you LOTS of money on average.
Withdraw all of it and put it into Bitcoins.
The heart attack from the volatility of the market will make a pension unnecessary.
I did this*
*No. I most certainly did not.
@sadexpunk - for any defined benefit pensions schemes you should check the small print, or call them, to understand what will happen in the event of your death.
By that I mean what will dependants receive; dependant generally means husband/wife and children under 18(?).
If, for example, you were divorced, not re-married, children over 18 the db pension is likely to die with you.
If you're looking into your pensions you should probably have a will in place.
There's some well meaning but misinformation on here amongst a few sensible comments. Sorry.
The only rules are that you must keep the annual gross pension contribution less than £40,000
Tax relief capped at greater of 100% of pensionable earnings or £3,600, so although there is a £40k allowance more pertinent to consider your own pensionable earnings if making larger contributions. If yo wanted to make very significant contributions carry forward rules could also be used. annual allowance consists of all contributions to pensions I.e your employers as well as your own.
Hargreaves Lansdown are popular but expensive for self investors. Much better deals exist. Some of their "discounts" and negotiated fees are questionable. They were late to offer clean (commission free and cheaper) share classes of the funds they offer. I believe IIRC that they have also been under attack for their wealth 150 or whatever they call it, although they strongly deny any accusations.
Not all IFA's are equal. They do charge fees (shock) - it's for you to decide if that's value for money. Some are very expensive and worth every penny some are cheap and terrible value for money (and the other way around).
Contracting out of State Second Pension, SERPS et al will reduce your State Pension, but potentially (depending on timeframe to retirement) you may be able to get the maximum flat rate State pension of £159pw.
It took the markets a good 10 years to recover from the 2008 crash
Mystic meg is in the house.
well ive had my first chat with an advisor. [url= https://societyoflaterlifeadvisers.co.uk/ ]anyone heard of SOLLA (society of later life advisers)?[/url]
followed a link from the gov.uk website for pension advice which led to them, which led to a local company.
seemed decent enough, took time to look through my paperwork and explained roughly what ive got.
1. an underperforming DC engineering pension (1%) from my first job, changed hands a few times and currently with zurich, bout 7 years of payments.
2. an aviva DC pension made up from government payments when i opted out of SERPS, not doing too bad.
3. a DB pension from engineering job no 2, 10 years worth of payments doing nowt special.
4. a small friends life/provident pot from some AVCs at the time of pension 3.
5. a small scottish widows DC pot from when engineering job no2 stopped DB and started new DC pension. had it a year then left for current job.
6. current DB firefighters pension, not much i can change with that, if i retire at 60 itll be nowt to get excited about.
matey explained the difference between DC and DB quite well, basically DB is paid for life, DC is a finite pot, invest it how you like and when its gone its gone.
depending on my goals it may make sense to keep some DB and some DC, pick up state pension a few years later. think he also explained 50% of DB would go to wife on my death, when she goes too thats it. DC would be passed on to kids as its my invested pot, so my estate if you will.
he said next step is for them to come visit, take some proper details (i assume plan numbers) and contact providers for transfer values, pot values, costs incurred for cancelling and transferring etc, then make a 'life plan' tailored to how much i want to get at what stages of life.
initial cost for work done if i want to go ahead (they havent divulged that cost yet) plus i think it was 3% running cost for anything invested by them. no definite advice as of yet but i didnt expect that, altho they did infer the 1% 'pension 1' would be better invested elsewhere.
sound about right? any pitfalls, things i should be asking/checking with them? they say theyre independent. that fee seem to be in the ballpark?
thanks
DC would be passed on to kids as its my invested pot, so my estate if you will.
Unless you die very soon after retirement I doubt there will be anything left, for 95% of people the problem is lack of money in retirement rather than having excess to pass on...
plus i think it was 3% running cost for anything invested by them.
Well, F me...
3% every year?
There's some well meaning but misinformation on here amongst a few sensible comments. Sorry.The only rules are that you must keep the annual gross pension contribution less than £40,000
Tax relief capped at greater of 100% of pensionable earnings or £3,600, so although there is a £40k allowance more pertinent to consider your own pensionable earnings if making larger contributions.
Although the odds of someone having £40k in net cash to invest in a pension without having taxable income to match is pretty slim (unemployed lottery winner starting a pension).