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 over-complicate 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 admin 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 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).
Want to find out More?
If this is of interest and you’d like to find out more about how we work with business owners, call us now on 0117 290 0370. We’ll schedule a 20 minute call with Hilary Carden to have a chat about your own circumstances. (Mention you saw this article).
Or you can email your contact details: email@example.com
Important Risk Warnings:
This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change. Correct as at January 2019. If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.
The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.
Last edited: January 2019