Ensuring your pension is performing at its best is not an easy task. In a complex, confusing and heavily regulated sector that is changing all the time, it is perhaps no surprise that many people have not altered their pensions since they first took it out, despite it being their largest single asset.
With so many different pension options available, all with different short and long term implications for your life time investment, ensuring your pension ticks all of your personal boxes can be daunting.
But with annuity rates some of the lowest ever recorded, it is now more important than ever to make the most informed pension decisions possible.
Stephen Baxter, Joint Managing Director at Yorkshire based Robertson Baxter (Independent Financial Advisors), believes that making the right decisions on pensions are important to safeguard your financial future.
“At the point of retirement, numerous pension options are available. The default choice at retirement for pensioners who haven’t been in an employer’s final salary pension scheme is to take out an annuity. This option provides certainty and security. However with every up side there is a down side, as this option only provides one fixed income stream.
“On the other hand drawdown schemes have become a viable and flexible alternative. This form of scheme tends to appeal to those with larger pension pots, who have a desire to make their nest egg work a little harder,” added Stephen, whose firm offer a ”˜full circle approach’ to financial planning for high net worth individuals, charities and trusts in the region.
“Britain’s current financial landscape has had an impact on personal pension plans. Once upon a time, being enrolled on an ”˜employer’s pension scheme’ kept things simple.”
The employee pension benefit was defined by salary and service with an organisation. However, “defined contribution schemes are now the main alternative offered by employers,” said Stephen.Â This is a retirement scheme that sees a pension fund built up from contributions made by both the company and employee.
“There really are countless options available when retiring, but the skill is in selecting the right option for your individual circumstances,” he added.
“If you have funds in a personal pension arrangement or a former employer’s scheme it could be well worth getting them professionally checked to ensure they meet your requirements. For example, if your pension automatically includes a spouse’s pension and you are single – what is the benefit to you?
“You might consider a pension transfer, even if the fund is later used in full to purchase an annuity, so long as you choose the right pension specification for your individual circumstances – such as on a single life basis -Â it is likely to be a far bigger fund and therefore of greater benefit to you rather than the scheme trustees.”
Unfortunately the financial outlook surrounding pensions continues to look uncertain. The 2016/17 tax year saw a further reduction in the ”˜Lifetime Allowance’ (LTA) which has now dropped by Â£800k in just five years.
The impact of this further limits the amount of pension benefit that can be built in pension schemes without heavy tax charges, whether lump sums or an annual retirement income. This current trend is showing no sign of letting up. Robertson Baxter predicts that more and more people will get caught out unless they take action to get the right advice, not just for the immediate here and now, but also on an ongoing basis.