FAQs: Should I Restart Pension Contributions into an old Plan?
A new client, James, wanted to restart his pension contributions and asked me whether it was better to resurrect his old Stakeholder pension plan or set up a new one.
Like James, if you’ve been working for a few decades there’s a good chance that you’ve accumulated a medley of different pension pots along the way.
Most of them will probably be closed to new contributions but some more recent plans, like James’s Stakeholder might still be open.
I understand that pensions can be a bit daunting, so let’s not overcomplicate this.
There are 4 important things to consider whenever you’re choosing where to invest pension contributions (or any other investment):
- Low Charges.
- Investments suiting your risk/reward profile.
- Flexibility and choice before, at and after retirement.
- Excellent Administration and helpful service and support.
These apply whether you’re looking at restarting an existing plan or setting up a new one.
So start by getting a baseline with some information on the plan that you might want to restart.
To do this, contact your pension provider and find the answers to the following 4 questions:
What are my Plan Charges?
Ooh this can be a tricky one. It’s really important to know what you’re paying because the charges can erode your fund. Pension charges vary from annual management fees to expensive exit fees. There are so many variations particularly on older pension plans that I’m going to cover it in a separate article.
In the meantime, check out ‘Top Tips for your Pension Scheme Charges’ from the Government’s Pensions Advisory Service website. I’ve put the link at the bottom of this article.
Where and how is my pension fund invested?
You’re looking for information on the funds you’re investing in. Look at the asset mix. How much of your total fund is invested in the ‘riskier’ areas such as UK and overseas equities, or property? Compare this to the more ‘cautious’ areas of cash, fixed income or bonds. Note that unless you’re invested 100% in cash both ‘risky’ and ‘cautious’ carry a risk of loss.
How do you feel about the investment risk you’re taking? For example, people who consider themselves yourself ‘average’ risk takers prefer 50% invested in the ‘riskier’ assets.
Check out the past performance of the funds. What is the % return over the last 12 months and longer. It’s not an indication of what will happen in the future, but find out how the short and long term returns compare to other similar funds.
Flexible Benefit Options
The new pension rules introduced in April 2015 mean we have lots of choice and freedom over how we take money from our pension funds. Make sure that your provider gives you access to those freedoms and doesn’t have their own rules that make it complicated or more expensive.
Administration and Service
A good test of the service standards and administration of your pension provider is how easy it is for you to get information either online or over the phone. Take note of this because for me, poor administration and slow response times speak volumes about the company you are dealing with. If it’s bad now what will it be like when you want to take draw your money out?
By now you’ll have a good idea of what you’re looking for and what you want to avoid. If your existing provider scores high on all 4 areas you might not need to look any further. If not, use the knowledge you’ve gained either to find a new one. Alternatively brief an independent financial adviser to do the work for you (for a fee).
With all investments your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 30 June 2018