Making contributions to a pension plan is an incredibly tax efficient way of saving for retirement. You can never start saving too young! However, despite Governments many attempts to simplify pensions, the subject is still ridiculously complex. For example, do you know the significance of “auto enrolment”, “capped drawdown”, “flexi-access”, “annual allowance”, “defined contribution pension”, “defined benefit pension”, “enhanced protection” and so on? I thought not!
Hamilton Financials pensions resident expert is Victoria Mann. Here are her comments on the topical subject of Pension Transfers.
It is quite amazing how many clients we come across who have literally “given up” on their pensions. The mere mention of the word ‘pension’ can induce a look of misery akin to someone whose Grand National bet has fallen at the first fence. The lamentable investment records of many of the big pension providers, together with their high (and hidden) charges, are mainly to blame. But the owners of such pensions should not despair. The pension rules have become much more amenable to those who want to take control of their pensions. Clients may wish to seek advice of a trusted pensions adviser.
A good firm of Financial Advisers will:-
- Thoroughly check the pension policy. In particular they will check:-
- The past investment performance.
- The level of charges.
- Whether or not there are valuable guarantees.
- Whether or not there is “enhanced tax free cash”.
- Exit penalties.
- If there are good grounds for moving away from the existing pension provider to a self-invested Personal Pension (SIPP), the adviser will recommend a switch.
- The adviser will recommend a good SIPP provider with a secure online WRAP platform. (This is simply an HMRC approved vehicle on which to hold your pension investments.) There are about 150 HMRC approved SIPP providers. In our experience, there are some incredibly inefficient, expensive and technically poor providers “out there”. Equally, there are some jolly good ones too. A good adviser will know the right SIPP provider to go to.
- Having executed the transfer – this will usually be in cash – the adviser will sit down with the client and discuss the client’s expectations, attitude to risk and likely retirement date. (This will be part of the Factfind).
- The adviser will make investments recommendations in line with the client’s risk profile and time horizon.