Once you approach retirement age, a key decision to make is how to make use of your pension income drawdown. However, your current pension provider may not be offering you the best drawdown deal – and this could be costing you money. Here are three key questions to consider, to help you decide whether your current pension provider is best for you.
Pension fees are probably the most frustrating part when looking at drawdown and flexi-access drawdown. Your pension provider will have charged a management fee as you held a personal pension with them, and once you retire it they could charge you to withdraw! Different providers charge different amounts for pension withdrawal, and this can add up to a significant chunk of your investment funds. If you are planning to make lots of small withdrawals, then the fees could quickly add up. The lower the fee, the more money for you.
As so many of us manage our money online, it may be surprising to learn that some pension providers do not offer online withdrawal. You may need to phone up in order to make a pension withdrawal, making the process inconvenient and time-consuming. If you have multiple pensions you could consider pension consolidation. A popular reason for this is convenience, as it is much easier to keep track of your pension performance and funds available to you if you only have a single pension fund to monitor. Finally, it’s worth remembering that some old pension policies may not offer drawdown – the only option is to buy an annuity. Although an annuity might suit some people (see our blog for what to think about), it doesn’t offer you the advantages of drawdown.
Unlike an annuity, with pension drawdown your funds remain invested. This is potentially good news, as your pension fund could grow. However, the value of any investment can go down as well as up. This means that if your pension performance takes a downturn, it could shrink rather than grow – and the worst-case situation is that you will run out of money. As our guide to pension drawdown explains, you need to make sure your money is invested in a way you are comfortable with. Like other investments, a personal pension can be invested in different funds. If you are comfortable with a higher risk investment, then this is your decision (although we recommend talking through high risk investments with an independent financial adviser who is authorised and regulated by the financial conduct authority like us at Pension Works).
Pension drawdown is increasingly popular these days. Many people are attracted by the freedom to withdraw as much as you like and when you like, and for the potential for the investment to keep growing throughout retirement. However, you need to research this carefully as part of your retirement plans. Have a look at our resources on Pension Drawdown here – or, even better, get in touch with one of our team.
To get free, independent financial advice on income drawdown, contact us today on 0808 164 2664. Or, to find out more about Pension Works, click here.
This can be found on your payslip, P60 document or letters about tax, pensions or social benefits.
If you have (or have had) a pension that is described below then we can potentially carry-out a Pension HealthCheck.
Defined Contribution Pensions
These are ‘Pot of Money’ pensions where the benefits provided take into account the value of the fund at retirement. They can be personal pensions or Occupational Pensions. There are no guarantees as to what pension will be provided. This will be a reflection of contributions made and investment growth.
Defined Benefit Pensions
These offer the promise of a guaranteed pension at retirement which reflects the length of service with an employer. It will be based on either the Final Salary or Average Career Salary of the employee. Providing the company is still in existence, there is no investment risk for the pension receiver. This type of pension is becoming less frequent.
This is a generic term for pensions that are not workplace schemes.
Group Personal Pensions
Employer-sponsored schemes – each member has a personal pension plan, and their contract is with the pension provider. The employer’s role solely is to select the scheme provider, decide if there should be any restrictions on fund choices and take contributions from the employee’s pay and forward them with employer contributions to the pension provider.
A private pension arrangement or personal pension is taken out by a sole-trader or self-employed worker.
State Earnings Related Pension (formerly Graduated Pension and subsequently State 2nd Pension or S2P) was an additional element of State Pension for employees. The amount of pension was linked to the employee’s salary. SERPS was abolished in 2016 when the flat rate State Pension was introduced.
Private pensions are contracts between the pension member and an insurance company or another pension provider.
These are personal pensions where the member has a much wider choice of investments, including commercial property and single company shares.
Personal Pensions with a set of rules that impose amongst other things a maximum annual management charge (AMC), low minimum contribution levels (£20 per month) and an appropriate Default fund.
Private pension linked to an employer’s Defined Benefit Scheme but separate from the Scheme’s internal Additional Voluntary Contribution (AVC) arrangement – largely defunct since the rules were eased several years ago, allowing people to contribute to both personal and employment schemes as they wish.
Money Purchase Pensions
This is another name for Defined Contribution Pensions.
Unfortunately, we are unable to help clients who currently work for or have a pension from one of the following:
If you are unsure about the type of pension(s) you hold, please contact us on 0800 756 1288 or email email@example.com