Whether it would be the right thing to start drawing money out of your pension arrangement at such an early age is a highly important decision, taking money out of your pension scheme now may leave you with a distinct shortfall in retirement income when you finally do give up work. If you talk to one of our financial advisers, we can help you understand what options you have at this moment and further help you make the best decisions suited to you.

The Reality

You will spend your working life saving for a house, holidays, food, bills, and children amongst many other things. One day you are going to want to give up work and still be able to live the comfortable lifestyle that you will have worked hard to enjoy. That income is going to need to come from somewhere.

State Pension Scheme

It is always important to remember you may already qualify for a state pension income when you retire, this is however dependent on the amount of National Insurance contributions that you have made throughout your working life. it is therefore important to establish what your projected state pension is going to be when you reach your retirement age.

Some people will also have some pension income paid to them via the state second pension scheme (SP2). Prior to 6th April 2002, it was known as the State Earnings Related Pension Scheme (SERPS). Knowing if you have any entitlement to this income would be fundamental to establishing your needs when looking at your retirement objectives.

If you have not paid sufficient National Insurance contributions during your working life you may be able to make voluntary contributions to enhance any state pension payable to you upon reaching your retirement date. This is something we can help and assist with when looking at your pension planning.

Therefore, one of your top priorities should be to obtain a state pension forecast from the Department of Work and pensions. (We can help you to obtain this forecast) This will give you an idea of what the minimum income will be that you will receive in your retirement years. 

Whilst this is a great start, this is far less than most of us will really need to maintain the lifestyle that you will have become accustomed to or will need.

Few people these days are lucky enough to be members of the more generous Defined Benefit Pension Scheme.  This is due to the cost to the employer of running this type of pension arrangement. Many employers have wound up this type of scheme now favouring the Defined Contribution Scheme often referred to as a Money Purchase arrangement. The benefits paid from this latter scheme often tend to provide less benefits to the members when compared to the earlier schemes.

It may be highly likely that you may have been enrolled into the new workplace pension scheme. If you are you may see names like Nest, People Pension, Smart Pension to name a few linked to your scheme. Your employer will be contributing into the scheme on your behalf (minimum 3% of pensionable salary) and you will be paying 5% of pensionable salary. That is providing you did not decide to opt out of the scheme.

While this is great, in reality, for someone on £25,000 per year who starts paying into this scheme from age 30. You might receive an annual retirement income of around £3,500 per year from the scheme.

This can leave a large shortfall in income for most people in their retirement years, especially when compared to the income they would ideally like to receive in their retirement age.

Private Pension Plans

Private pension plans are a simple and effective way to bridge your income shortfall in retirement and come with a host of benefits and incentives such as those from HMRC. Whilst private pension plans are one of the most effective ways to save for retirement, they can also be complex in the way they are set up.

To provide the most tax efficient growth to your money it is important to ensure you are saving enough each month and your pension is growing at a reasonable rate, to provide you with your target income. For that reason, it is so important to speak to an independent financial adviser who can talk you through the options to make sure you can retire the way you plan. Further information can be sought via the Money Advice Service.

Pension Transfer or Consolidation

Most people these days find they have several pension pots sitting around from previous places of employment, often people forget some of the schemes that they have paid into. Likewise, they have several personal pension pots with varying providers that they do not know what to do with. These could be sat in a variety of option type’s ranging from high risk or extremely low risk investments or even cash accounts. It is important to remember each provider could be levying their own costs and fees for running the scheme, additionally differing fund managers will also be taking their slice of the cake to manage each individual fund you are using within your pension portfolio. All of this can have a massive impact on the eventual pension fund that you will have Available to you to provide your pension income.  

Often people have never even been spoken to about how they would like their money to be invested and whether these old pensions are still fit for purpose.

Our advisers can talk to you about the performance of these pensions plans and the options that may be available to you to consolidate or transfer your benefits should they not fit your needs or requirements. Some people find they can save thousands of pounds by simply taking time to talk through the options with a professional pensions and investment adviser.

Do I transfer my pot or not?

Making good decisions about whether or not to transfer your benefits from your existing pension schemes into a new scheme is not an easy decision. In many cases you may want to seek the advice from an independent financial adviser. Information can also be obtained from the pensions advisory service. https://www.pensionsadvisoryservice.org.uk/

It is important to remember that there may be charges for transferring your pension to another scheme. You will need to consider how do you want your pension money investing, potentially the new scheme may not offer the same investment options as your current scheme, this is something that will need to be checked before making any transfer. Additionally, what will the new scheme be charging to administer the plan and what will the investment charges be? All of this can impact on your pension fund at retirement. It really does need to be a benefit to you before you should take any action.

Further information can be obtained from the pensions advisory service or the money advice service.

Please note that Commodore Finance Ltd. do not offer advice or guidance if a client is looking to transfer a final salary defined benefit pension scheme and some employer pension scheme benefits. We can however refer you to another firm who do offer full advice and guidance on this type of pension need.