What is a pension?
A pension is any investment that will provide you with an income in retirement. Most people choose to invest in a ‘Personal Pension Plan’, which has special tax concessions making them great value for money.
What is an occupational pension?
This is a pension scheme provided by your employer. It can offer a guaranteed pension in retirement, or it will offer a guaranteed regular contribution. These are referred to as ‘guaranteed benefit’, or ‘guaranteed contribution’, or ‘money purchase’. The latter is becoming more and more popular amongst employers, as there is a known cost.
What about the Stakeholder pension?
This a pension that follows rules set down by the Government. Costs are fixed. These pensions usually have fewer option, therefore not so flexible.
Why do you need a pension?
Your State Pension will not be enough for you to enjoy your retirement. It is likely that you will be in retirement almost as long as you were in work. The sooner you start to save, the better your retirement will be.
How safe are pensions now?
If you have a money purchase scheme – where you have your own pension pot and where the employer guarantees nothing – then you are dependent on the regulator, The Financial Services Authority, which now seems to have sharper teeth and be hungrier to seek out bad practice.
With a money purchase plan (and indeed, any other form of personal pension) your main worry is performance. Montgomery Paul will check your pension’s progress and have an annual review with you to ensure your pension remains on the right track.
But if you have a “final salary” plan, then it could all go wrong if the firm providing it goes bust – as several have. After lots of scandals where employees lost huge sums, there is now a safety net – the Pensions Protection Fund. This is better than nothing but not a full replacement for a lost fund.
How much should I save for a pension?
Most people hope to retire on two thirds of what their salary is at retirement. Very few get there. To achieve this (unless you are lucky enough to have worked all your life for an employer with one of the best final salary schemes) depends not only on how much you save but also on how well your fund managers perform.
But, regardless, the sooner you start saving the better. The later you leave it the higher your contributions (payments) would have to be.
Can I have more than one pension?
Yes. However, it makes sense to consolidate your pensions so that you can take advantage of reduced fees. You will also have one point of reference as you near retirement.
What’s the best way to buy a pension?
Always use an Independent Financial Adviser. There are hundreds of pension providers, specialising in different areas. IFAs are trained to ensure you get the pension that best meets your requirements now, and in the future. NEVER use a comparison site. If you don’t know what questions to ask, you could end up with an entirely incorrect scheme for you.
Should I pay the pension sales person Commission or Fees?
Advisers are paid for the work they do – by you, in the same way as your solicitor, accountant or dentist. Your adviser will give you ‘per hour’ price, or work on a percentage of the accumulated fund. No Pension Provider pays commission anymore.
What happens to my pension when I die?
With ‘Pensions Freedoms’ your pension can be passed on to whomever you choose. If you die before age 75 your fund will be passed on from generation to generation free of Inheritance Tax or any other tax. Should you die after age 75, different rules concerning taxation of benefits apply.