Have you got ‘The Fear’ when it comes to your pension?

The Fear and Your Pension

This might appear a bit strange to you, but not to me. I often sit in coffee shops or have lunch with friends, and we end up talking about pensions. I see that look of fear in their eyes. Fear of talking about something that don’t feel comfortable about. Either they have no clue what is happening with their pension or they don’t have a pension. A rare few know their pension situation, but not many!

You see, I am incredibly passionate about talking pensions. Particularly with women. I want everyone to know how much they have and what that might be worth once it is decided to be used as income. I want everyone to be properly prepared for their financial future and to have financial freedom, reaching a point where money becomes less of a worry.

The state pension is not enough to live on. The way that everything is going in the UK economy it may reduce or may even disappear, according to some commentators. It is incredibly important to have a private pension fund set aside for later life if and when you choose to stop with a salaried job.

The Fear

I call it the fear, the fear of the unknown. The fear of the thing that has been swept under the carpet for the past ten, twenty years. The thing that was so far away in the future, so far away that no-one had to worry about it, except now retirement is not so far away.

I am 42, many of my friends are around this age. That’s just 15 years (the age at which point people can draw from their private pensions is expected to change to 57 from 2028, but this could change to later in life) until I could potentially draw from my pension. It is really not far away. Everyone needs to get their ducks in line, as early as possible.

I start with my story

When talking pensions, I always share my story first, just to put people at ease (unless they have nothing). I feel like for my age I have a relatively small pot, and this certainly gives me the fear. I opted out of pension contributions during my 20s. Coming to my senses at aged 32, I opted back in and stayed opted in until age 38. I have a pot now worth 50k from those 6 years of employment.

At age 38 I left the employed world to set up my own business and the world of self-employment and priorities of expenses meant that I didn’t restart my pension contributions until the age of 42! During this time, I consolidated my pensions with PensionBee which has given me the freedom to contribute now as and when I am able to.

Coffee with a friend

I recently met a friend for coffee, and we talked (amongst many other things) pensions. My friend admitted to not having much of an idea about her pension situation. She has been putting off looking into it for years and years. She hasn’t got enough money to warrant a financial adviser helping her out (they often state that you need at least 100-150k of assets for them to help you out).

Like me she has quite a few years of employment with associated pension pots and a few recent years of self-employment. She has three different pots and would like to find out how what is in them and how they are performing. Also, if it is a good idea to consolidate the pensions as each of these previous pensions are frozen, meaning that nothing further can be added to them.

It is simple what she can do

Firstly, get the details of each pension plan, the important information is the policy number. I recommended calling each of the pension companies to get the following information

  • The current value of the pension, how does this compare to the money that was invested?
  • The annual fee, what % of her returned are being eaten up in fees.
  • What type of pension are they, final salary or defined contribution?

If this feels all too much and too scary, my friend could hand over the policy no, pension company names, along with her name, address, DOB and NI number to PensionBee who can do the investigations for her for free to see if consolidation is suitable. PensionBee will check for transfer/exit fees and will let my friend if they are anything above £10.

What do I like about my Pension consolidation?

I explained the things I liked about consolidating my pensions and some things to look out for. I hated the fact that my pensions were frozen, and I couldn’t add anything to them, so it was a priority for me to move to pension plan that allowed me to contribute in a flexible way. Flexibility being a key option for me as some months I can contribute, other months I cannot, cash flow dependant.

Fees are a big deal with pensions. If you are paying more than 1% this is far too much. The PensionBee tracker fund fees are 0.5% for example (the plan my money is in)

Also look at growth. How much have the funds grown by in the past say three years. Just to illustrate a point, my funds have increased (Jan 17 to Dec 19) from 43.8k invested to a current valuation of 51.4k in the three years my pension has been with PensionBee. I feel happy with this growth. This in no way guarantees future growth but gives an indication of past performance.

Technology is important for PensionBee. There are some really useful tools that give me all the information I need to understand my current pension value and future valuation. The PensionBee app is great and gives me my up-to-date valuation and growth history over time.

Retirement Planning Tool

A new feature of the app is the retirement planner tool.  Using your current pension balance, you can set your proposed monthly contribution or one-off payments to see the impact on your pension balance at a proposed retirement age. You can also set your desired retirement income to assess how long this money will last.

Rather than focussing on past performance, the new retirement planning tool is forward looking, and helpful to see how much has been saved, compared to a target, at a glance. It lets me know whether I am on track for a comfortable retirement, based on current level of savings and life expectancy, or whether they’ll need to boost their savings to reach their long-term goals. 

Leaving the conversation with less of ‘The Fear’

My friend left the conversation with more of an idea of what to do and less of the fear. I followed up with her and it turns out that one of her pensions was a final salary. The best thing to do with that pot is to just leave it alone.

The other two pots could be consolidated with PensionBee. My friend would save money on her annual pension fees and would now be able to contribute to her pension freely as and when she chooses.  And another bonus sees her get a £50 credit to her pension pot, as well as me, if she uses my refer a friend code to set up her account. Win Win.

Please be aware that any form of investment can go up and down.  You may want to consider advice from a qualified IFA. Just make sure they come recommended by a trusted friend and check their investment levels.  Some will only work with clients with an investment level of at least £150k. This post was written in collaboration with PensionBee.

 

 

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Lynn Beattie

Aka Mrs MummyPenny

Personal Finance Expert

I write about personal finance made simple, lifestyle choices that will save you time and money, as well as products and services that offer great value.

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