Any old pensions?
One of the many services we provide is a review of existing pension benefits. Some clients turn up with the information in their heads, while others come along with several plastic bags full of just about all the paperwork they have ever received over the previous thirty years. No specific order, upside down, back to front and usually with a Breville Toastie Maker receipt from the 80’s or something similar thrown in for good measure!
In whatever way we are approached, the client’s main aim is often to “tidy up” their pension situation and get everything put into one place. While this is a very natural and understandable objective which can often be achieved, the truth of the matter is that this course of action can also end up costing thousands of pounds in lost benefits. A fundamental problem is that many clients don’t seem to think that their various plans are worth much and so don’t value them very highly. As a result they can’t see any point in paying for advice to have them professionally reviewed. How wrong they could be…
Much of the advice provided when we review benefits actually relates to why existing plans should remain where they are. Good examples of this are as follows:
Final Salary benefits that offer highly valuable guaranteed income amounts in retirement. Although the offered transfer value can seem eye wateringly big, often what it can buy by way of a guaranteed income on the open market is woefully inadequate by comparison. An index-linked guaranteed income of £7,000 p.a. in retirement with a 50% widow’s pension or a £100,000 transfer value. Which option would you choose? You would actually need around £200,000 to buy a £7,000 p.a. income on the open market. A bit more than just ‘oops’ if you did transfer!
Old Retirement Annuity or Personal Pension plans may have Guaranteed Annuity Rates (GARS) included in the contract terms. Such plans often guarantee an income at retirement of twice as much as can be secured on the open market. So, such a plan with a £30,000 transfer value is actually intrinsically worth £60,000! How expensive a mistake would it be to consolidate that into the works’ group pension scheme? You do the maths!
The Government has introduced new rules which demand that advice must be sought by anyone considering a transfer if the intrinsic value of the plan is over £30,000 where there are any ‘special features’. Such benefits are known as ‘safeguarded rights’.
This new requirement is good news as it will not only save many DIY pension plan holders hell bent on cashing their plan in from themselves, but it will also reduce the likelihood of scammers getting their hands on such highly valuable benefits. The new flexible pension rules have dramatically increased the number of scams being promoted by the unscrupulous, so always check that you are dealing with a firm that is ‘authorised and regulated by the Financial Conduct Authority’.
Before reading this article, how much might you have been prepared to pay to have your benefits reviewed? Nothing, £50, £100, £500, £1,000? Having seen the potential amounts at stake, what do you think now?