Pensions
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Pensions
Carolyn Dunion explains all you need to know about your pension pots and planning for the future.
When should you start putting money into your pension?
As soon as possible. The earlier you start, the better. When you consider that you’re going to be contributing to a pension throughout your career, how much you contribute might vary quite a bit throughout your lifetime.
Even if you start with a nominal amount when you’re quite young, your older self will thank you.
Is it too late to start a pension?
It’s never too late technically, but obviously if you’re firmly into retirement, you’ve probably missed the boat. It’s certainly better to start late than not at all.
What are my pension options? Are there different types of pension?
There are different types of pension. Generally speaking, if you’re working for an employer, there’ll be a workplace scheme. With auto-enrollment, every employer should be offering you the opportunity to contribute to a pension, although you can choose to opt out of that.
The schemes can vary dramatically depending on who you’re employed by, but they tend to be plans you may not necessarily be able to do much with.
You can also choose to open a private pension, which you would arrange yourself. People who are self-employed therefore don’t have a workplace pension, so that’s definitely something to consider.
Can you combine pension pots? Are there costs involved here?
Theoretically, yes, you can combine pension pots and there will potentially be costs involved. It depends on the pensions that you have, the provider and whether you’re taking advice.
If you’ve got a lot of small pensions with a number of different employers – which is increasingly common – it makes sense to combine your pots. It makes them easier to track. We often see people forget and lose track of their pensions, so tidying them up can be useful from a logistical point of view.
How much can I put in a pension?
The government will set a limit, which can change from budget to budget. You tend to be able to contribute a significant amount.
Unless you’re very high net worth with lots of money, most people are not hitting the limit of what they can contribute. It does depend on your income and on the current legislation.
The rules change, and that’s a very important reason to have an advisor – we can help interpret the current legislation against your circumstances.
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Can I review my pension plan at any time?
Yes. You can review your pension plan anytime you like. If you haven’t done it for some time, it’s a good idea to touch base with a financial planner to see what your situation is.
Most people will have a pension for a very extended period of time, and only really start to pay attention when working out how much money they could get out of it, and when they can retire.
Checking in regularly to make sure that you’re on the right track is really beneficial. Over the time your pension pot’s growing, you’ll have lots of changes in government, changes in the economic situation in the wider world, but also changes in your own circumstances. Regular reviews can really make a big impact on the end result.
What costs are involved in setting up a pension?
If you’re taking advice on what pension is most suitable for you, there will be an advice fee payable to your financial planner.
In terms of setting up the actual pension itself, there isn’t usually a set up cost, but there will likely be some fund management charges and costs involved with the product.
It does depend on what pension you’re opting for. That’s something your financial planner can help you navigate, to make sure you’re getting the best value for money.
How can I access my pension or savings?
There’s a number of different options. People have often heard of an annuity, which is basically using your pot of cash to purchase a product that will pay you a set income for life.
How much money you have in the pot will shape what that looks like. Annuities tend to be for people who want that stability of income. An alternative to that is a flexible access drawdown fund, which allows you to access your pension funds as it suits you.
For example, people might reduce their work hours but not fully retire. They might have some income from contract work and want to top that up with their pension funds, but not take too much too soon.
The important thing is that you cannot access pension funds until you reach a certain age, in most circumstances. Again, that’s down to current legislation and may change further down the road.
It’s so important to get advice on the right solution for you. Be sure you’re making the best use of the funds you have, providing you with the sort of income that meets your needs – and that you’re not incurring more tax than you should.
What happens to my pension when I die?
You can pass your pension on to your beneficiaries, and often you’ll be asked to nominate somebody. That might typically be a spouse or children – whoever you want to pass on your pension to. There are various tax rules and implications to that – and it’s again worth taking advice.
These things are quite complicated and there are a lot of moving parts in people’s circumstances. The simple thing is that you can request that for your family.
How can a financial advisor help? Is there anything else you’d like to add?
Your financial planner is there to help you navigate through current legislation and tax regimes to make best use of the opportunities for you and your circumstances.
They’re also there to monitor and track your progress, and flag up if you’re not putting in enough money to get the retirement that you want. They will make sure you’re making the right decisions as best you can.
Another big part of what we do is act as a financial coach, helping people to think about the type of retirement they would like. We explore what’s important, what costs you may still have in retirement and how you might look to fund those.
It’s about unpicking some of the emotions and circumstances, as well as the technical aspects.
The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
