A pension is one of the most tax-efficient ways to save for retirement. However, many people have no idea how well their fund is performing, what they are paying in charges, or how much risk is being taken with their money.
Do you need to review your pension scheme? There are a number of different factors that may affect your pension, and reviewing these periodically will help ensure that you get the highest income for your retirement
We have local offices in Edinburgh, Falkirk, Glasgow, Livingston and Stirling and provide Financial Advice on Pensions throughout Scotland. If you would like to speak to an Independent Financial Adviser (IFA) then book your free initial consultation.
Cost
Over time, through legislation and innovation, pension products undergo a lot of changes. Most modern products have simpler (and often lower) charges compared to older pension plans. If your pension has been running for a number of years, there is the chance that the charges no longer competitive. These fees have a direct impact on the returns achieved and therefore the income you will receive in retirement.
Consolidation
For someone who has had several jobs, there is a likelihood of having numerous pensions from different employers. Consolidating all your pensions can be beneficial as it may result in lower charges, access to a wider range of investment options and makes it easier to keep an eye on your fund value and the returns achieved.
However, consolidation is not always feasible or advisable. Caution should be exercised in transferring defined benefit (final salary) schemes given the value nature of the guarantees they contain. For this reason, it is generally advisable to leave defined benefit pensions untouched. The decision to consolidate pensions should only be taken after a thorough evaluation considering factors such as: any exit penalties that may exist, any loss of guarantees/bonuses or any other valuable benefits.
Risk Approach
During our lives, our risk appetite tends to change. Depending on the remaining period to your retirement, your level of financial security, and the amount of growth you envisage realising from your investments, a risk profile can be ascertained. With employer-based pensions, you are likely to have been placed into a default investment solution which may be taking too much or too little risk for your personal circumstances. We recommended the risk profile of your pension is reassessed every year to ensure that your retirement objectives are likely to be met. After carefully reviewing your risk profile, you will be able to align your investments to match with the risk level you are comfortable with.
Obviously, putting all your eggs in one basket is a precarious investment approach. For this reason, it is always advisable to diversify your portfolio to help spread the risk. When reviewing a pension, an investor who has exclusively placed money in funds run by one company or invested in one asset class may wish to make some fundamental changes to their portfolio.
Performance
Without reviewing your pension, it may not be possible to ascertain how well or poorly your fund is performing or the benefits to be expected in retirement. The State Pension may not provide sufficient income to allow you to maintain a comfortable retirement. Frequent pension reviews will help to assess the performance of the funds you are invested versus alternative funds and make changes if necessary.
Not all pension companies and investment funds are equal and there can be a large difference between the best performers and the worst.
The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.