Dust off that pension and get it working for you
Posted by Nick Lawlor on November 25 2013 @ 12:12
Have you ever switched from one employer to another? Have you ever been made redundant? Have you spent some time working for yourself? If you can answer yes to any of these three questions then ask yourself one more question: did you start a pension plan during that time. If the answer to this question is also yes, then there is a good chance that you have a pension plan somewhere which isn't working as hard as it could be.
It was the arrival of Personal Retirement Savings Accounts (PRSAs) a few years ago that made it easy for people to take their pensions with them when they moved jobs or were made redundant. Before PRSAs came along, people who were moving from one employer's pension scheme to another usually had to leave the value of their pension in their former employer's scheme until they retired. This meant that the value of their pension was at the mercy of the old employer's advisers and investment managers. What's more, with no new contributions being made the ongoing management fees and charges could eat away at the pension value over the years.
The good news is that if this is a scenario you are familiar with then there is a very straightforward solution. You can convert the residual value of your former employer's pension into what's called a Buy Out Bond. This will give you more control over how and where the value of your pension is invested so that it better reflects your appetite for investment risk and reward.
With a Buy Out Bond your money will grow tax-free until you retire and the annual management charges are generally low, typically between 0.5% and 1.5%. Another very important advantage of Buy Out Bonds is that in certain circumstances you may be able to get access to the value of your Bond when you turn 50, rather than having to wait until the usual retirement age of 65.
A personal pension becomes even more important if you are self-employed. That’s because with no employer benefits to fall back on and an often variable income pattern, people who work for themselves usually realise the importance of careful forward financial planning. However, when self-employed people go on to join a company as an employee they usually have to park their personal pension if they want to join a company scheme. Many of these people will usually just leave their personal pension alone and stop paying into it. If this is what has happened in your case, it is well worth having your personal pension independently reviewed with a view to ensuring that your money is properly invested and that the ongoing management charges are as competitive as can be.
In fact any pension that was taken out more than 10 years ago or so should be urgently reviewed by an independent financial adviser. It is only relatively recently that the charges and fees levied on personal pensions have become more competitive as new regulations have made the charging structures more transparent. An independent adviser can review the fees on an existing pension and either negotiate more favourable terms from your existing pension provider or advise you on the possibility of moving your pension to another provider.
Which brings us to the issue of moving from one pension provider to another. While many people don’t think it’s possible, there is actually is no obligation on you to stay with the same provider. It’s now easier than ever to switch pension providers to secure lower fees and charges, higher allocation rates or an investment strategy that is more in tune with your retirement ambitions.
Lastly, do you know how secure your pension fund is? It’s an unfortunate fact that many pension funds have suffered from the economic uncertainties of the last few years. While pensions are long-term plans that are designed to accommodate the lows as well as the highs of the investment cycle, there will come a time when risk-taking needs to end and a more pronounced focus on security begin. This is typically 10 years or so before your planned retirement. That’s when you need to talk to an independent financial adviser about rebalancing your pension plan so that it is weighted towards the security of bonds and cash and away from more volatile assets such as equities and property.
If you have a personal pension plan which has been left on the shelf for a while, it’s well worth your while dusting if off and speaking to an independent financial adviser. You should be pleasantly surprised by how easy it can be to release more value from your pension and make it work even harder for you.
Nick Lawlor is the owner of Lawlor Financial Planning and is one of only a small number of Certified Financial Planners or CFP®’s operating in Ireland and is based in Keeper’s Cottage in Leixlip. Contact firstname.lastname@example.org or 0863161232 for a complimentary consultation. Nick Lawlor Financial Planning Ltd trading as Lawlor Financial Planning and Simplysave is regulated by the Central Bank of Ireland. Lawlor Financial Planning does not take responsibility for individual financial decisions made based on this article.