|
Can you have too many pensions?
By Matt Pitcher
A Moneywise magazine reader from Essex recently asked me the following question:
I currently have five frozen pensions, which I am not at all happy about as there is little continuity and my benefits from each when I retire will be piecemeal. At the moment my company is being bought out, so once again another scheme will be frozen. I have been offered a new scheme, but as I already have so many pensions, I don't want to take this out. Can you tell me whether there are any alternatives for me? I am 48 years old, and while I would like to retire at 60, I would settle for 65.
This was my reply:
Despite the number of pensions you already have, it's not wise to dismiss the new company pension out of hand. Company pensions are often cheaper than the private equivalents because companies often negotiate a discount on the running charges. Also your employer may be willing to pay money in for you, even matching the contributions you pay in. Giving up this type of contribution literally amounts to refusing free money.
What may make things easier for you is to consider transferring some of your old preserved pensions into the current or new pension plan.
As a starting point, ask your existing pension providers for projected benefits at normal retirement age, and then ask your new scheme for the same projection based on the transfer value. This will give you an indication of whether it's worth transferring or not. However, this is a complex area, so it's essential you seek professional advice before taking any action. You should also note that it's rarely wise to transfer final salary schemes as they often have valuable guarantees. Likewise, you need to be mindful of transfer penalties from either existing or new providers.
Stakeholder option
If you're adamant about starting a private pension independent of your company, then the obvious starting point is a stakeholder pension. These are flexible and cost-effective, even though the Government has recently increased the maximum annual charge from 1% to 1.5% in the first 10 years. There are still companies, however, that offer stakeholder pensions on the old 1%-a-year basis and that will reduce the charges even further once your fund is over a certain size.
Whatever provision you decide on, you must pay as much into your pension as you possibly can if you intend to retire as early as you've indicated. Too many people base their pension on the premiums that are affordable. Instead, you should decide how much income you need at 60, deduct your state pension entitlement and the projected pension income you will have from the old pensions, and then use the remaining figure as your target for your new pension.
Matt Pitcher, IFA at Towry Law in Bracknell
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View