Pension consolidation – a review
A common feature of today’s pensions market is the number of people who have multiple pension plans. The reasons for this are numerous but the stories people tell me are mostly the same - “I’ve got all these pension statements coming in at different times and I don’t have a clue what they mean. I have no idea how my pensions are performing or if I’ll have enough money in my pot come retirement.”
If this sounds like you then it may be a good time to review your situation to see if pension consolidation is in your best interests. At the very least you should then be able to understand exactly what assets you really do hold, rather than wondering nervously or simply guessing.
Why Consolidate Your Pensions?
One reason for moving your money purchase pensions is to help achieve the goal of better investment performance. Many pensions written in the past were simply put into With Profits or Managed funds and have been left ever since to their own devices.
The difference between a good With Profits/Managed fund and a poor one can be huge, e.g. the best With Profits fund has grown 45.49 % over the last 5 years whilst the worst has only achieved a derisory 1.13% over the same period. The best Managed fund has a cumulative performance over 5 years of 103.79 % whilst the worst has grown only 4.61%! (Past Performance Data Source:- Lipper 13th September 2007)
Clearly choosing a pension with better performing funds is very important. However there is a downside: you may have to pay large exit penalties to move out of your existing plans. Some firms such as Standard Life and Norwich Union scrapped early exit penalties in 2001 but many other firms still charge significant penalties particularly in relation to With Profits funds (this is normally called a market value reduction-MVR).
If you are close to retirement then it may the case that you don’t have enough time to re-coup your costs no matter how much better your new funds perform.
Choosing a New Pension
When I’m asked to review a client’s current pension schemes and make new investment recommendations I make it a point of using the latest online technology available to me in the financial services industry. At Integrity Financial Solutions our systems enable me to provide the best recommendations based on the information given to us by a client’s existing providers.
Then by applying sound investment principles and on going analysis my goal is to be able to suggest at very least a realistic course of action to enable my client’s pensions a real chance of meeting their expectations. If it is not in peoples best interests to switch then of course I tell the client this in their report.
Basically if it ain’t broke why fix it?
Our sophisticated research tools also enable me to accurately assess my clients attitude to investment risk which in turn allows us to place them in the most appropriate funds.
Detailed and constant ongoing analysis of hundreds of funds allows us to carry out proper asset allocation and suggest/make appropriate changes as and when required.
This proactive approach tends to sit well with clients who are all too familiar with the scenario where they have not seen the person who sold them their original contract for some years. More than one person has mentioned this approach to managing their pension has brought them much more peace of mind when thinking about their retirement, and they’ve found the new approach refreshing.
If you’re one of the many people who are sitting with more than one pension contract then now might be a good time to take stock of your overall situation and see if by simply consolidating your pension schemes you may be able to enjoy higher returns for a better retirement from your pension fund.
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