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What to compare
Transferring a pension involves a significant amount of research to ensure you do not give up benefits in a plan, that are perhaps no longer available to new pensions. A thorough analysis is therefore needed to assess the following;
Charges
How much is your pension provider taking out of your money each month for the pleasure of running the scheme. Pension charges today are normally between 1-2% of the fund value. In the 80’s and 90’s pension they were often much greater than this.
This was mainly because interest rates were much higher then and this in turn meant higher average investment returns.
If, say your fund was producing 12% a year growth and they were charging you 5% of this, then you were receiving a 7% real return, which wasn’t bad.
Imagine now however that same plan, in a lower interest rate world, may be achieving 6% return but still charging you 5%. 1% real return doesn’t look so attractive does it? If you have a smaller pot then it is not uncommon for the charges to be higher than the returns and therefore your pot can be whittled down to zero.
Investment Performance
The funds are the engine room of your pension plan and if they are not performing then quite simply your pension is not going to grow. There are thousands of investment funds to choose from and it is imperative that your monies are invested in the best performing funds. These will change regularly so you should review them annually and make fund switches where necessary.
Find out what the growth rate has been on your existing funds over the last five years and compare it to the funds at the top of the league tables. You may be surprised at how poor the performance has been.
Investment Risk
The cornerstone of understanding investment risk is accepting that there is a direct relationship between the amount of risk that you take with your investments and the potential for gains or losses. There is no wonderful fund out there that gives you a great return for zero risk, no matter what their marketing literature may say.
If you are a cautious person or are close to retirement then naturally you will want to be in the lower risk funds such as gilts and fixed interest. If you are adventurous or have many years to go then you may be comfortable investing in stocks and shares and accepting the short-term volatility in the aim of greater longer term growth.
The important point is that there is no right or wrong answer. You just need to select funds which match your risk profile.
Your ‘attitude to risk’ when you started your plan may be markedly different from what you would choose now. You should therefore review your fund choice to ensure that it is still appropriate.
If you have an old or frozen pension plan then you should have it reviewed by the qualified experts.
You may be able to:
- Increase the value of your pension
- Unlock your pension
- Consolidate your plans
- Save Łthousands in pension charges
- Access better performing funds
- Release tax free cash from your plan
- Receive an immediate income
