Pension Transfer Advice - Why Do I Need It?

There are three main reasons why you might need pension transfer advice.

1. You are in a final salary or defined benefit pension scheme at work, and your employer wants you to move to a defined contribution scheme, or some other pension arrangement.  In some cases employers might offer incentives to you to switch.  If you have any choice in the matter, it is extremely important to take pension transfer advice to help work out what is best for you.

2. You decide you want to transfer accrued benefits within a company pension scheme to your own personal pension fund.  Whether or not to transfer is an extremely complex area and you really should seek specialist advice.

3. You are already in a personal pension plan, but feel the charges are too high.  Many of the plans sold before 2001 have high charges and management fees that can really eat into the final amount you accrue.  So if you have one of these it could well pay you to transfer – newer pension plans mostly have lower fees, as well as being more flexible as to the assets you can use as part of your pension fund.  However it’s a complex decision – you really must take pension transfer advice, both to check that it’s the right decision, and to help you select the right pension plan to move into.

Whichever of these situations applies to you, the pension transfer needs to be an informed decision.  You should look for an IFA (independant financial advisor) with a specialised qualification in pensions (you can check this out before you proceed).  Most providers of pension transfer advice will charge a fee rather than operating on commission. 

So what questions do you need to ask the adviser?  Whatever questions you ask, they should include the following:

• What are the risks of switching?  Do the risks outweigh the benefits or vice versa?
• Does the scheme you are transferring out of have transfer penalty charges?  If so, is there any way of reducing them or avoiding them?
• Request a “transfer value analysis” which will help you compare your current scheme with any alternative you are considering.

The final decision is always yours, but pension transfer advice will help you be clear about the best course of action.  Remember that in some cases the advice will be not to transfer.  It’s a big decision but advice will help you avoid a step which you later regret.

Pension Advice - Most Of Us Are Going To Need It

Everything to do with pensions is complicated – and it all seems to be getting more so, despite pensions supposedly having been simplified in 2006.  Whatever kind of pension decision you need to make, it will really pay you to take pension advice.

So what kind of decisions might you need pension advice about?  Some examples might include:

• How do I plan my pension?  Pension planning is basically about taking control of your life, rather than waiting till retirement and hoping for the best.  So the earlier you start taking advice on pension planning, the better.  The adviser will look at your employment situation, your current income and commitments, your preferred retirement age, etc.  The advice will look at such questions as: what is the right type of pension for me (e.g. final salary, money purchase, personal pension)?  What size of pension pot should I be aiming for? How much should I be putting aside each month? 

• Should I take “tax-free cash”?  This is now referred to as “pension commencement lump sum” (PCLS).  If so, how should I use it?   If you are in a company final salary scheme, you will usually receive the lump sum as part of the package.  However, if you are in a personal pension plan, you can opt to take 25% of the fund as a tax-free sum at the commencement of your retirement.  Of course this would affect your income so you need to consider whether this is something you really want.  If you haven’t yet paid off your mortgage, you could use the lump sum to pay it off, which would actually increase your pension income.  Another option is to buy a “purchased life annuity”, which has tax advantages over the standard pension annuity.  Or, of course, you could take that world cruise you’ve always wanted!  Pension advice can help you make the right decision.

• What is my tax situation?  How can I minimise the amount of tax I pay?  The tax situation where pensions are concerned is quite complex, so you could end up paying more tax than you need.  This is where you really do need pension advice.  The more efficiently you can organise your tax affairs, the better you can maximise your income in retirement, as well as maximising the amount you can leave to your family.  The pension adviser needs to ensure you know what tax relief you are entitled to on your pension contributions.  In addition, if you are in a position to make additional investments to increase your retirement income, you need to know what are the most tax efficient investments to make, to ensure your investment income in retirement has the minimal effect on your pension income.

Whatever your pension situation, you could probably benefit from pension advice at some point. 

Remember that, for the best advice, you should choose an Independent Financial Adviser (IFA) who has access to the whole of the market and who has an advanced qualification in pensions,  If you are worried about being pushed into a personal pension plan when it’s not the best option for you, choose a fees-based rather than a commission-based adviser.  But the vast majority of IFAs will give you advice that’s in your best interests and that will ensure that you are as comfortable as possible in your retirement.

79% of the public are mystified by pensions

79% of the public are mystified by pensions according to research published by Halifax Financial Services.

The pensions survey was published to coincide with the 100th anniversary of the basic state pension which was introduced in 1908.

Out of the 2000 people surveyed, 79% were confused by the basics of their pension and had no idea when they would receive it or how it would be paid. Sadly, even more people are confused about their options at retirement with 83% having no idea how much tax free cash they could take from their pension fund.

It is important to have a sound understanding of your financial affairs even if part of the pension is provided by the government. Having a level of knowledge will help you to plan for retirement and assess how much income you are likely to receive.

Those people who want to maintain a good standard of living in retirement need to ensure their pension planning will meet those requirements by taking pensions advice.

An independent financial adviser will be able to take a detailed look into your pension affairs. The IFA will provide an estimate of what your current pension arrangements will produce and then devise a plan of how this can be improved on.

As with all long term savings, it is important to regularly check and review the performance to see if everything is ‘on track’.

Financial Investment Advice - Find the Type That Meets Your Needs

If you need advice on any aspect of your finances, you should look for an independent financial adviser.  However, some advisers provide advice across the whole range of financial matters while others specialise in a particular area such as mortgages, investments, insurance or pensions.  So if it is financial investment advice you need, you should check that the adviser does provide this type of advice.  And if he/she actually specialises in financial investment advice, so much the better.

However, investment itself is a very broad field, and some providers of financial investment advice will specialise in a specific area.  So depending on what you need advice on, it’s a good idea to check that the adviser has some expertise in that particular area.

• If you have money to invest, either as a lump sum or by putting aside a regular amount, there are two main ways you can do it.  You can buy shares in one or more companies, or you can put your money into a pooled or collective investment vehicle such as a unit trust.  This has some advantages over shares in that its performance doesn’t just depend on the fortunes of one company, so the risk is spread.  You really should take financial investment advice to help you decide which product is best for your requirements.

• One very specialised type of investment product is pensions.  You would normally look for financial investment advice if you were considering buying into a personal pension plan.  However it’s also a good idea to seek advice if you are thinking of joining or leaving a company pension scheme.  If you need pension advice, you should ensure the adviser you talk to is qualified at least to AFPC (Advanced Financial Planning Certificate) level (now known as Advanced Diploma in Financial Planning) with the G60 Certificate in Pensions or AF3 Pension Planning (or the equivalent) as a specialisation.

• Another type of product for which you might need financial investment advice is a Self Invested Personal Pension Plan or SIPP. These are based on the rules of a personal pension plan but have wide powers of investment so you could invest in commercial property. You may have no idea what to choose so, again, you will more than likely need financial investment advice. 

Financial investment advice isn’t necessarily just a general product – it can be very specialised into different types of investment.  You shouldn’t automatically assume that the investment adviser will be equally expert in each type of investment. Don’t hesitate to ask an adviser about his/her qualifications and specialisms, as well as length of practice and degree of experience.  A good adviser will be very happy to provide this information before you commit yourself.

Company Pensions – Are They Always A Good Thing?

If you work for an employer who offers a company pension, generally speaking you are quite fortunate.  Company pensions are usually seen as a very good thing.  In some companies, it’s compulsory to join the pension scheme. If it’s optional, you have to decide whether to join it or not. 

So how do you make this decision?

In the first place, you probably need to check on the soundness of the policy.  Up till a few years ago, most company (or occupational) pension schemes were perfectly sound, and joining them was almost certainly your best option.  Recently however there have been some scandals where employees who had paid into a pension fund found it had collapsed and they had nothing to show for their contributions.  If you have this decision to make, you should seek advice about the soundness of both the company and the scheme, and the level of guarantee.

The other question you need to consider is what type of pension scheme is offered.  Company pension schemes can be contributory or non-contributory.  The other main distinction is between “defined benefit” or final salary schemes on the one hand, and “defined contribution” or “money purchase” schemes on the other. 

• If the scheme is contributory your contributions will be taken directly from your salary, before tax.  Normally the contributions are taken through the payroll.  The contributions may well be matched by the employer.

• A final salary or “defined benefit” scheme is usually seen as an excellent option from the employee’s point of view.  You know exactly how much you can count on when you retire, as it is guaranteed.  It’s not such a good deal for the employers, because if the amount in the pot falls short, they have to make up the difference.  For this reason, more and more employers are closing final salary schemes – some to new entrants, others to the entire workforce.  If the latter, existing members will have their contributions frozen, or transferred into another type of scheme.  If the scheme works as it should, your pension will be a proportion of your final salary (according to the number of years you have worked for the company) and will be index-linked.

• With a “defined contribution” or “money purchase” scheme, your contributions go into a fund which is invested.  Your eventual pension will depend on how the fund performs.  So unlike the final salary scheme there is no risk to the employer – all the risk is yours.  When you retire you are obliged to buy an annuity – an investment product that provides an annual income for life.

In most cases it’s a good idea to join a company pension scheme if there is one.  But if you are in doubt, or need help in evaluating the scheme, you should seek the advice of a financial adviser.  In some cases you may be dissatisfied with your company pension and feel you would like to transfer to a personal pension.  This is a big decision so make sure you seek pensions advice from a qualified professional.

How Do I Find Independent Pensions Advice?

As the population ages, the question of pensions becomes increasingly acute. At the same time, pensions are becoming increasingly “big business”, and there are more and more on the market. 

If you’re thinking of taking out a personal pension, you can of course shop around yourself.  However, with more pension products coming on the market all the time, it will be quite hard for you to get an overview of the whole range of products, let alone compare them and work out which is best for you.  What’s more, if you buy a pension without advice, and it turns out not to be right for you, you have limited rights to complain or claim compensation.  So you would really be better off looking for independent pensions advice.

So if you decide you would like independent pensions advice, how do you go about finding it?

For a start, you would really be better looking for an adviser in your local area.  It all involves talking about pretty personal stuff, so you would probably feel more comfortable discussing it face to face.  If you have access to the Internet, you can find qualified people in your local area by doing a postcode search on one of the search websites such as www.unbiased.co.uk  - you can select which kind of service you particularly want, e.g. retirement planning.  Alternatively you can ask friends and family or use your local Yellow Pages.  In this case, before committing yourself, you should ask for proof that they are FSA authorised. 

When you first visit a provider of independent pensions advice, you will be given two Key Facts documents.  These will make it clear to you whether they provide information only or actually recommend products, and also whether they have access to the whole market or are tied to a single provider or a limited panel.  If you’ve got as far as looking for pensions advice, you will probably want someone able to recommend specific products and select from the whole market.  In addition to the two Key Facts documents, you will also be given a document that makes it clear whether the provider is paid via fees, commission or both.  There’s nothing to stop you visiting a few advisers to make sure their provision is suitable for you, and also that you find someone you feel comfortable with.

Once you start working with a provider of independent pensions advice, he/she will first look carefully at your whole situation.  This includes your age, your family commitments, your health, your employment or work situation, and your finances.  The adviser will also discuss with you what you are looking for in your retirement – whether you fancy early retirement or not, what kind of living standards you hope for in retirement, etc.  Some of this will be quite personal, but you need to be as open as possible as this is how the adviser will select the most suitable product for you.  If you work for a company that has a pension scheme, the adviser will discuss your reasons for leaving the scheme or not wanting to join it.

If the adviser is able to select a pension product that suits you, you will receive a Key Features document telling you everything about it, including the level of risk.  You have no obligation to go ahead until you are absolutely certain you feel happy with it.  The adviser should give you as much time as you need as it’s a big decision.

Independent pensions advice can be extremely important.  Your pension decisions can affect your whole life, more than almost any other decision you make.  So make sure you get it right.�

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