pensions in focus

1. Pension planning costs

Pensions come in many different shapes and sizes. A pension plan can be expensive, carrying layers of unexpected costs and hidden charges. A fundamental part of a professional review is to ensure you’re not paying more than you should.

Costs are necessary for the running of a pension, but can be unnecessarily detrimental to your money; affecting your future income. Pension costs have reduced greatly in recent years, with most modern plans operating online, in a similar way to online banking.

A pension review will compare the costs of your existing plan to what’s available elsewhere. While some pensions charge to switch, most don’t. A pension switch is surprisingly easy and quick, and the sooner you switch your pension savings to a lower-cost contract, the sooner your long-term growth potential will improve.  

2. Review investment performance

There are thousands of regulated investment funds available for UK pension savings. Additionally, pension money can be invested into direct equities and commodities. A well balanced investment portfolio will ensure steady and consistent returns.

If a pension portfolio is not regularly reviewed, it can become ‘skewed’. For example, ten years ago, your pension may have been invested 50% into equities, 20% into property, 20% into fixed interest securities and the remainder into alternative assets. Upon review 10 years later, you may find the equity content as high as 80% – resulting in a much higher risk portfolio.

Over time, the success of one asset class can result in an unbalanced portfolio. Rebalancing or readjusting a portfolio should be done at least once per year. A portfolio which has over-performed in one asset class can result in its risk-grading changing without you realising.

3. Filling the savings gap

A pension review isn’t just about looking at its costs and portfolio. A review will consider what you have saved so far, and what you need to save in order to achieve the retirement income you will need.

Relying on the State pension is typically not enough. Filling the gap from the age you choose to retire to the age your State pension will be available is a vital component of a good pension review.

A financial adviser will perform cashflow and fund projections, to see what retirement income you’re on track to achieve and whether you should be funding your pensions further to achieve your goals.

4. Understand your retirement options

Most people collect a handful of pensions in their working lives. Each pension is designed and structured differently, meaning they present different options upon reaching retirement.

A good pension review will uncover the benefits and limitations of your various pension policies, and whether a pension consolidation would be beneficial. In some cases, keeping different types of pension can be beneficial; where a pension may offer a protected lump sum amount, guaranteed benefits or total flexibility. Pensions can be used to great effect when complimenting each other.

5. Plan for what you can afford

In some cases, a pension review acts as a reality-check. A review can help evaluate what sort of retirement is affordable. It can prioritise expenditure planning and debt repayment in your final years before stopping work.

Where further pension contributions are not affordable, or you’re very close to retirement, it may be time to curb expenditure and take a realistic approach to retirement planning.

Reviewing your pension savings and what they will produce in retirement is essential. Even if you already have a financial adviser in place, consider a free second opinion to make sure your plan is on-track.

5 Reasons to Review Your Pension

Pension Transfer Personality Quiz

Take our free pension transfer personality quiz to find out if a pension transfer is right for you!

1 / 10

How would you describe your investment or financial planning experience?

2 / 10

Where will you live in retirement?

3 / 10

What sort of taxpayer will you be in retirement?

4 / 10

How would you describe your relationship with money and finances?

5 / 10

Are your essential outgoings already covered by other retirement income?

6 / 10

Will anyone else be reliant on your pension for their financial security?

7 / 10

When you retire, will you need to withdraw a lump sum?

8 / 10

Do you require ad-hoc access to your pension funds in retirement?

9 / 10

How would your ideal retirement income be structured?

10 / 10

If you died, who would you want to benefit from your pension money?

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