You may think that just because you have a pension plan in place, you’re financially prepared for the future. However, you may not be aware of the importance of reviewing your selected scheme on a regular basis.
The pension landscape has diversified a lot over the years. And if you’ve previously enrolled in a plan with a specific funding pattern and investment approach in mind, it’s feasible to assume that everything’s ticking along as expected.
But if you enter retirement without reviewing your pension schemes and investments, the sum accumulated may not live up to your expectations. You may even discover that your chosen plan may have become unsuitable for your situation years ago.
This article is going to explain what a pension plan review is, why it’s important to have them regularly, and what the process should involve.
Click the links below for more information, or read on for a comprehensive overview:
Pressed for time or simply want a one-to-one chat? The team of experts we work with are more than happy to review your pension scheme with you and deliver bespoke advice for your situation and needs.
Give us a call on 0808 189 0463 or fill out our online enquiry form and we’ll match you with an expert shortly for a free, no-obligation chat.
A pension review is where your current pension scheme or schemes are examined to determine their current performance, and how they are predicted to perform in the future. These reviews can be reviewed by regulated financial advisors.
The process may involve reviewing whether your pension fund is growing at the expected level, exactly how it’s invested, and whether it could perform better with alternative investments.
What does the pensions review process involve?
During a pension review, a regulated financial advisor will look over your pension and investment products to see if they are performing as well as they could be. Your pension review process may involve an advisor looking for the following:
- Underperforming investments and/or expensive management fees that are restricting your financial goals
- If your current pension products fit with your attitude to risk (or if you’re unsure, an expert can work with you on this)
- If they are currently on-track to meet your retirement income goals by a desired age
- Whether you should merge your pensions together (pension consolidation) or keep them as single pots
Once your financial advisor has made a full assessment, you can make a fully informed decision on how to approach your pension management. An advisor can also find products that are more appropriate for meeting your financial goals.
It’s important to know exactly what’s happening with your money. Regular pension fund and investment reviews will be able to give you a good indication as to whether your pot will pay out your desired amount.
For example, if you set up a scheme which has been following the same investment approach since day one, you may find that your pot wouldn’t have accumulated enough funds to support you during retirement.
And this is where the benefits of pension reviews become apparent. For example, you could find that the 5% you’re paying in annual fees for three separate pension funds could be transferred into one single fund, thus reducing annual fees.
Alternatively, a pension review could reveal that your original options are performing poorly, and that by transferring to a different pension plan, your funds are likely to grow at a faster rate. This could then be reviewed again the following year.
If you miss taking advantage of fund growth for even a few years, it could have a huge impact on the future value of your pension pot and therefore your retirement income.
There are two types of pension you can have: a Defined Contribution (DC) pension and a Defined Benefit (DB) pension. Both can be reviewed, though read the sections below for a full breakdown.
Defined Contribution (DC)
With a Defined Contribution (or money purchase) pension, both yourself and your employer contribute funds into a pot (NEST plans are just one example of these schemes). The amount you get will depend on how much has been paid in, how much tax relief you’ve received, and how well your investments perform. It’s essentially your own personal investment fund.
Before the Pension Freedoms Act of 2015, you had to put the taxable 75% of your pension pot into an annuity. Now, however, those with a Defined Contribution pension have the freedom to access their pension from age 55 and do with it what they wish.
Defined Contribution pensions are the simplest when it comes to reviewing and moving from one pension provider to another. DC schemes can be:
With a Defined Contribution scheme, you can opt to switch or transfer your pension to another provider. A switch is just moving your benefits from one DC provider to another. A transfer, however, is transferring a money purchase scheme to a personal pension.
Capped drawdown vs. flexi-access
The Pensions Freedom Act also saw capped drawdown pensions close to new applicants in 2015. If you decide to take out 150% of your annual income from your capped drawdown pot, it will automatically transfer into a flexi-access account. Otherwise, you can choose to convert it yourself.
Defined Benefit (DB)
A Defined Benefit transfer isn’t as simple as a DC scheme: rather than having an individual pot just for yourself, you pay money into a scheme which will pay you an income.
Defined Benefit pensions (also called final salary pensions) typically come from public sector jobs or large private companies, and your pension amount increases based on the number of years you’ve worked there and your salary amount.
You can review your Defined Benefit pension, though if you do want to transfer your funds out, you’ll need to get a cash equivalent transfer value – this is a lump sum in exchange for you giving up a pension from the scheme.
You will then need to move it into a Defined Contribution pension.
You’ll need legal advice from a regulated financial advisor if your pot is worth more than £30,000.
A personal pension is a type of Defined Contribution scheme that you arrange yourself. It allows you to contribute to your own pension, or to someone else’s pension (such as a spouse or child).
A personal pension is a great option to provide additional funds for employed workers alongside a workplace pension. However, a personal pension could be very valuable to a self-employed individual or unemployed person as it allows them to contribute to their future when a workplace pension isn’t viable.
With this in-mind, it’s definitely worth keeping on top of your personal pension products to make sure that your extra contributions are performing their best with the right provider.
It’s advisable to check at least once a year, though this depends on your circumstances and what you’ve invested in.
You may wish to set up reminders as reviews are only carried out if you arrange one. This is because there are plenty of scammers out there, so to offset the threat of any fraud, you need to initiate things.
Pensions are long-term investments, so it’s understandable that people neglect to review theirs for years, if at all – but as we’ve established, that often ends in disappointment. But agonising over it every month doesn’t make sense either.
The experts we work with are fully regulated by the Financial Conduct Authority (FCA) and are legally authorised to give you advice regarding your pension. Make an enquiry and we’ll match you with someone for a free, no-obligation chat about your pension review.
It depends on the scheme you’d like to transfer to, and what benefits there are.
If you do have to pay additional costs, make sure that they’re justified – this is where working with a financial expert would be very handy, as they can run through everything with a fine-tooth comb and go over any potential issues with you.
Yes, you can, though you would need to make sure that this is the right option for you.
Having all your pension pots in one place can make things much easier for you, though make sure that you aren’t missing out on a good deal for the sake of simplicity.
You can make the process easier by working with a financial advisor. Because they have access to providers across the pension market, they can find the right pension providers for your financial goals, and also weigh up the benefits of transferring into one place.
Your current pension(s) may have certain benefits that you would prefer to not give up, for example a good pension for a beneficiary if you were to pass away.
If you have an annuity, the agreed rate may be lower than what you’d be able to get today, so it’s worth taking your time and evaluating the pros and cons of your pension.
A financial advisor will be able to help you with this.
They’ll be able to spot any unique features in your scheme and make recommendations based on what they find. Make an enquiry and we’ll match you with an expert today.
While there isn’t an overall ‘best’ pension provider, there’s definitely a ‘best’ provider out there for you, and an insurance expert can help you find them.
Get in touch and we’ll match you with an advisor who can use their whole-of-market access to find the right providers for your circumstances.
Many advisors provide an initial free consultation, then will quote you an upfront fee. This is usually calculated as a percentage of the amount you wish to transfer, withdraw, and/or invest.
For example, in the UK, the cost of a review of a standard private pension pot may vary considerably in comparison to a stakeholder pension, or if you’re looking to withdraw a specific amount and enter a drawdown plan.
Basically, how much you can expect to be charged for a pension review is completely case-dependant: the provider, size of your pot, and what you want to do as a result of your review will all play a role.
Make an enquiry for a free, no-obligation chat with an expert about a pension review.
Are free pension review services available?
You can get a free consultation, however, you will most likely have to pay a fee if you want to take action (e.g. switch your investment plan) as a result of your pension review.
It’s always advisable to work with a reputable and fully qualified financial advisor to ensure that your money ends up in the right hands.
Whether you’re planning to retire in a few years or you’re currently retired, it’s always a great idea to review your current financial circumstances in order to offset any potential risk.
For peace of mind, speak to one of the experts we work with. Give us a call on 0808 189 0463 or send us an online enquiry and we’ll match you with someone for a free, no-obligation chat about your pension review.