We’re well into 2020 now, and many New Year resolutions will have already been cast aside. But I reckon this is an ideal time to think about what really makes a difference and resolve to address your pension provisions.
The State Pension is only worth around £730 per month. But there’s a number of ways you can improve on that.
Do you have any other company pensions? We enjoy a new range of pension freedoms these days, including the ability to make our own investment decisions. I had two company pensions, and I made 2019 the year I did something about them. The cash from both is now under my control in a Self-Invested Personal Pension (SIPP), but it wasn’t all plain sailing.
One pension was a defined contributions scheme, which would have provided me with whatever the underlying investments were worth at drawdown. That was easy to transfer to a new SIPP. I just had to fill in a few relatively simple forms, and it was all good.
Not as easy
The other one, though, was an old-style pension with some protected benefits. Essentially it offered a minimum income even if the investments performed badly. And the State still can’t keep its nannying hands off those. No, you can’t transfer your money out of a scheme with protected benefits unless you take professional financial advice.
I was lucky in that the pension provider wanted me out too, and offered me a 45% uplift to my fund’s calculated value to get me to take my money and go. And, it offered to pay for the professional advice I needed. It still wasn’t simple. Having to follow all kinds of rules, the advisor still initially advised me to stay where I was. They did eventually give me the recommendation I wanted. But I had to be very insistent (and I had to phrase my insistence right – which they helped me with).
If you want to get out of such a scheme, I suggest approaching your existing provider to see what help (and, perhaps, what bonuses) they might offer. And even if you have to pay for the required advice yourself, I think it’s worth considering depending on the size of your pension pot and your own investing confidence. For me, I would have paid for the advice had I not been offered it free.
Risky?
Now my pension cash is liberated, I’m still not done as I haven’t reinvested it all yet. In fact, I’ve only reinvested a relatively small amount. So that’s my resolution for 2020 – to get it all invested and working for me.
It’s all going into UK shares, with diversification across sectors and indexes. And that brings me to one surprising thing about financial advisors – perhaps not all, but certainly mine. They seem to be programmed to equate shares with high risk. I asked how a portfolio diversified across the FTSE 100‘s top dividend stocks and held for at least 10 years was in any way a risky strategy. But it says in their rules that shares are high risk, and that’s what they have to parrot.
I’ll write more about my pension progress through 2020. But for now, you’ll get plenty of ideas if you keep visiting these pages.