The job for life is largely a thing of the past. Employees tend to change jobs and, in some cases, employees change career direction way more frequently. This does create financial planning opportunities. For those who neglect their pensions and don’t plan this creates a suboptimal outcome.
Multiple Pension Pots
As a result of transience, it is now the norm that an employee has multiple pension pots tied to old and present employers. Due to inertia, employees are left with a series of pension pots they know little about. They don’t know how much they have in it, they don’t know how it’s invested and they have no visibility on the associated charges. They don’t have control.
To varying degrees employees now have an opportunity to build real wealth via their pension funds. This opportunity can be wasted if these old/previous employer pensions are neglected and ignored. There is little consideration to the investment strategy and who owns the assets, very few are including these old pensions into their overall financial plan.
A review of these pensions is a prudent exercise.
A lot of these pensions are in default strategies, this asset allocation may not suit your overall profile. Too many are not taking enough risk and with a long time horizon. We are seeing allocation to only one asset class and geography in a lot of these pensions. It is important to gain control and have regular reviews to make sure you are on target. You should include these old pensions in your overall planning.
The old rule of thumb was to leave all your pensions where they are, sure … won’t they be grand! It then became popular to consolidate pensions. It is important to highlight that this is not always a good idea! It simply doesn’t make sense all the time. Phasing your retirement is becoming more and more popular.
This is the concept that you can access a pension fund after you have left employment and you are age 50 or older. You can access the tax-free lump sum to pay off your mortgage, pay for your children’s education or go on a pre-retirement trip.
Someone who has just moved to a new job sometimes feels it is prudent to transfer their old pension to the new employer scheme. A downside here is by taking the old scheme into the new scheme, the old pension funds are now subject to the new scheme rules.
Take control of your pension
Demystify all the noise that happens around pensions and bring it back to you, what is best for you. Book your free virtual appointment with us. What we leave you with is a high-level road map of how we could help you achieve your retirement goals.
Take care,Kieran Ward
Managing Director, Pension Advisor