DIY Investor Magazine
/
Jan 2017
41
in pension tax is unclaimed each year – make sure you
don’t contribute to that total.
Take control;
pensions used to be something that
‘happened’ – some money was taken each month and
was returned at retirement as a lump sum that reflected
the success, or otherwise, of the funds the pension
manager selected.
This then bought an income for life.
However, with pension freedoms comes choice, not to
mention personal responsibility; take the entire pot as
cash, buy an annuity or go into ‘drawdown’ – just aim
not to outlive your pot.
It’s a big responsibility, but an increasing number of
investors are deciding that they can improve upon the
lacklustre performance of the ‘default’ funds that they
are pigeonholed into by their pension provider, and save
themselves some chunky fees to boot.
In for a penny
; if you’ve got this far through the tick-
sheet, you’ve probably devoted more time to thinking
about your pension that ever before, so why not see it
through?
The work you did in identifying each of your pension
assets may have thrown up a very obvious opportunity
to streamline your savings and to consolidate them in a
way that is cost-efficient, simplified and likely to deliver
you the best income in retirement.
After gathering together the information gleaned in the
first step, you might quickly see that it will save money
to group some or most of your pension assets together;
some schemes have better investment choice or even
pay your management fees.
Now that you’re in full swing, take a look under the
bonnet, because pensions can vary greatly in terms of
flexibility; as an example, in the past many plans only
allowed death benefits to be made as a single payment
potentially attracting a greater tax liability than modern
schemes which allow a series of withdrawals.
If you do decide to grasp the nettle, be careful to
understand what you are giving up; schemes offering
eye-catching payments for you to exit are not just doing
so because they are thoroughly decent chaps; they
would be happy for you to leave because of the high
cost of providing the often generous terms of your plan,
and particularly final salary scheme.
Many defined contribution contracts contain guaranteed
growth or annuity rates which are far more generous
than those you could achieve in today’s market;
the sums being offered for savers to cash in their
guaranteed income for life are at record multiples of
annual benefit, but those choosing to do so are then
taking on responsibility for ensuring that their pot
achieves sufficient growth to deliver them an income for
the rest of their life.
Any transfer over £30,000 will require you to take
financial advice and however tempting it may be to trade
a £35,000 annual benefit for a £1.2 m lump sum; those
with no other source of income and little experience of
investing could be excused for feeling a little nervous.
However, one certainty is that the pursuit of income will
be a recurring theme for
and those
taking the plunge will be encouraged to share their
thoughts and invited to learn from the experiences of
others.
