Old Pensions: A Boon Or A Bane?

Old Pensions: A Boon Or A Bane?

Time to review old pensions?

Old pensions opened decades ago might actually result in the present day’s loss of income. When you open a defined contribution pension account decades before you actually retire, the pension charges you pay accumulate to more amount paid than realised compared to pension accounts that are opened in more recent times.

The charges are only a few pounds but add up to thousands as you retire. Defined pensions actually end up delivering poor value for money. An average fee paid annually by people in their 50’s is almost over 1.1% of the amount they receive yearly, whereas for the same account opened more recently is only 0.8%. This 0.3% difference might not look like a very high amount but proves to be enough when seen at the end of your retirement.

Let’s understand this with an example. If your pension is worth 100,000 pounds, opening an account three decades ago will make you pay more than 11,000 pounds in total until you retire. In contrast, you will only have to pay around 8,000 pounds if you opened a defined contribution account one decade ago. This 3,000-pound difference is something you can use in your post-retirement life only by amending your ways to open a defined contribution account. The larger your pension amount, the more you can gain by opening the account more recently.

What is the value of your pension?

What is the value of your pension?

You can determine the actual value that your pension is giving you by assessing the total fees you pay and the alternative fees that you would have to pay if you opened an account more recently. The thousands of pounds that you save can be invested for your post-retirement life.

A few things you can consider apart from the scheme charges are –

  • GAR (Guaranteed annuity rate): A GAR is a rate that is set with the terms and conditions of your pension when you actually open the account. The rate is higher if you open the account more recently and guarantees an income in your post-retirement life. However, in some cases, annuity rates in recent times can also be lower than what they were three decades ago, and hence you can receive a higher income post-retirement. So, make the choice of switching pension schemes accordingly.
  • Investment performance: a lot depends on how your pension scheme is actually performing. Review the changes in your investment portfolio and pension performance. If your retirement savings are growing faster than ever, you can stick with the old plan; otherwise, switch to a new one.
  • Higher flexibility: There are some old pensions schemes that help you access your money sooner than the newer pensions in hand. In this case, you should decide and stick to the old pensions schemes. On the other hand, if the newer schemes provide you with more flexibility and options, you can think about switching to enjoy more freedom when you retire.

Pension transferring

After considering all the factors mentioned above, if you feel that your old pension is not delivering as much as it should and you need to switch to a newer scheme, it is time to transfer your pension scheme. You can either switch plans with your existing provider or switch providers altogether. Most pension providers who existed three decades ago are still bringing newer pension plans into the market, so you can consider researching them in more depth to make the right choice.

Some providers ask for a minimum, or maximum contribution level, so check that before you finally opt for a pension scheme. A required regular deposit must be understood before omitting to a pension scheme so that you know what you are promising.

Final words

Since pension plans are a long-term investment and majorly help you with your post-retirement life, they should be thoroughly thought through before making any decision. In case you ever have any doubts, you must contact a financial expert to consult and get their expert option on the same. Pension plans are also impacted due to interest rates at an economic level. If your fund value fluctuates and is impacted negatively, you should keep a close eye on what other providers are providing at all times.

Want to learn more about pensions and the options you have? Request an introduction to speak with a pensions expert now by clicking the link below.

 

Share the Post:

Facebook
Twitter
LinkedIn
WhatsApp

Related Posts

Disclaimer
The information provided on this financial planning website is intended for general informational purposes only and should not be construed as professional financial advice. While we strive to offer accurate and up-to-date content, we cannot guarantee its completeness or suitability for your individual circumstances. Always consult with a qualified financial advisor before making any financial decisions. We are not responsible for any actions taken based on the information provided on this site. Use of this website and its content is at your own risk.

Copyright © 2024 Expat Wealth Adviser. All rights reserved. Made with 💖 by MJ Studios.