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 PensionWise 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 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…..

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 stakeholder pension 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 may 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 hurt anyone holding equities 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. anyone heard of SOLLA (society of later life advisers)?

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. [/quote]

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).