At a glance
It’s easy to spot an ill-fitting suit or dress. Knowing if something is properly tailored to you or not is much harder when it’s not tangible. Like a pension. Unfortunately, the cost to you of an ill-fitted pension is much more than a trip to the shops. High charges, poor investments and a lack of management are just some of the things that could be mothballing your retirement plans. Thankfully, it’s easy to fix if you know what you are looking for.
What do you mean by a tailored pension?
A tailored pension is moulded to you. It’s not an off-the-shelf, one-size-fits-all product. Throughout life our circumstances and plans change, as does the world around us. Your pension needs to adapt to reflect these changes. The goal is a pension that:
What questions should I be asking my pension provider?
What type of pension have I got?
If you have a final salary workplace pension, then you should be in a very good place. These types of pensions promise to pay you a guaranteed income for life from a set age. This is a very attractive benefit because you don’t have to shoulder any of the investment risk. Your company is obliged to pay you the income they have promised, regardless of how the investments they made with your pension contributions have performed.
On the flip side, these schemes are usually less flexible when it comes to accessing your pension money early and passing on any of your pension when you die. If you have a final salary type scheme and these two features are very important to you, it’s worth speaking with a financial adviser to see how your pension could be better tailored to you. In most cases, though, if you have a final salary pension, keep hold of it.
There are a range of other schemes that come under the broad banner of personal pensions. Generally, these types of pension are extremely flexible. Although, with this flexibility comes greater potential risk. If you have a personal pension, then you should be asking your provider these questions (we’ll explain below why they matter when it comes to a properly tailored pension for you):
What does a properly invested pension look like?
Generally, personal pensions are much more powerful than other ways of saving, such as a bank account or cash ISA. The minimum aim is to beat average inflation rates over the long term so that your money grows rather than decreasing in value as living costs rise. While tax relief and tax breaks help to combat the inflation factor, how your savings are invested plays a big part in how much your pension pot will grow by over time.
A properly invested pension takes into account:
The other key thing to consider is the underlying investment philosophy:
Are you prepared to trust your pension savings with someone who tries to predict what might happen in the future, or would you prefer a philosophy grounded in historical facts?
Quite simply, a properly invested pension takes into account all these factors and is moulded to make sure it’s a perfect fit for you every step of the way: from when you start your pension to retirement and beyond.
Why does my pension need to be managed?
Trying to balance all the different factors you need to consider for a tailored pension can be extremely tricky. It can take a lot of time to get to grips with the basics and then put this knowledge into practice. Plus, if you manage your own pension it’s unlikely that you will have any sort of protection against poor investment decisions. Getting a pension specialist to manage your savings for you means peace of mind, less hassle and, on average, at least £27,000 more in your pot for when you need it1. You just need to make sure you choose the right specialist for you. The key thing to look out for is:
An insured financial adviser that is regulated by the FCA
What pension charges should I look out for?
Annual management charges
Most pension providers levy an annual management charge. If it’s not immediately transparent, such as with profits funds, you could be paying for the service you are receiving in other ways. These annual management charges vary wildly and could have a significant impact on the size of your pension pot.
For example, just 1% higher scheme charges could mean £25,000 in lost growth over 20 years2. It can be easy to forget about these charges because they usually come straight out of your pot. Yet, tailoring your pension to keep these charges as low as possible could mean a lot more money to fund your retirement plans when the time comes.
A pension specialist doesn’t have to be a financial adviser. There are non-advice-based companies out there who offer to combine your pensions into one pot. This usually means it’s easier to keep track of your pension and less hassle for you. It could mean you also end up paying less in charges. You cannot be sure though because these companies will not evaluate the pros and cons of your current pensions. The danger is, you could be transferring out of a pension that is already low on charges. And you could be giving up other valuable benefits. While a regulated financial adviser may charge a little bit more than non-advice-based companies, you could end up getting a lot more value for your money over the longer term:
How do I make sure my pension is tailored to me?
Speak with a regulated financial adviser that is proven and trusted. They will review your current pension plan, to see what shape it is in and if it is tailored to your needs and circumstances. It makes sense to choose an adviser with no up-front fees.
This means you get a report showing you exactly where you stand with your current pension, if there’s a better pension out there and what it could mean for you in the long term. All without having to pay a fee.
The report will also show you how much it would cost if you asked the adviser to act on your behalf. Or, you can walk away fully informed with nothing to pay. Our FCA number is 754580.
Important Information, References and Links
1The Value of Financial Advice – a study by independent think tank ILC-UK (July 2017)
2 Based on a £50,000 sum at onset, growing at 6% per year before charges of 0.5% and 1.5% are applied