Here’s a little known fact for you – I have a first class Economics degree and when I graduated I trained as an actuary. Yeah I know, I didn’t know what an actuary was either until I got the job, (it’s a lot of maths around pensions and insurance and risk), although I remember at the time reading somewhere that it was a job for ‘people who found accountancy too exciting’.
As you might well guess, it wasn’t really my dream job. What it does mean though is that I’m meant to know a bit about pensions.
What is it exactly about pensions that so many people find scary? Why do we bury our heads in the sand when it comes to long term finance? This attitude is particularly frustrating in the case of pensions as by the time you feel grown up enough to think about it, it’s TOO LATE. Okay, so it’s never too late exactly, but the younger you can start investing in a pension the better – money saved in your twenties is worth SO much more than in your forties. The state pension is currently only worth about £8,000 a year, so if you’re relying on this when you retire then you’re screwed. Sort out your pension NOW, however old you are.
Fortunately I did kind of twig this early on, (it would be a bit embarrassing if I hadn’t with the whole ‘working in pensions’ background), and I started paying into my first work pension scheme when I was 21. When I left that job to have Belle at 24 I took it upon myself to set up a stakeholder pension. I only paid in £60 a month initially, because I was on maternity leave and poor, but it has always been there, pottering along. Last year, when all the documents for my pensions could no longer fit into a lever arch file, I decided it was time to take action. I went through everything and it turned out, due to my flighty nature, that I had a total of seven pension pots from various jobs over the years.
Seven pensions is just a bit greedy isn’t it?
I went to an independent advisor, and they helped me streamline everything and transfer all seven into one pension pot. Just to reinforce the point about the earlier the better, that first pension that I paid into between the ages of 21 and 24? That’s now worth over £40,000. (Yeah, I know, I was surprised too.)
Is this making you think ‘Damn, I really should track down all my pensions and DO something with them?’
By the end of this post you are going to be digging that pretty little head of yours out of the sand and feeling excited about dealing with your pension situation. Well maybe not excited, unless you are a pension geek like me, but reassuringly positive at least.
So recently I spoke to Michelle Gribbin, Sales Director for a company called Profile Pensions. Profile Pensions has a very specific remit – to look at your existing pensions and help you decide whether or not you should switch pensions to get a better return. They can help you trace missing pensions and consolidate if you have more than one pension, if that’s what’s right for you.
‘We’re essentially a pension switching company,’ Michelle tells me. ‘We review people’s pension and advise on whether they should leave it where it is or whether they should switch. If they do switch, we then review it regularly, to make sure it’s performing well and suits that person’s individual needs. We’re not for people wanting to set up a pension from scratch – you’re better placed going to see someone face to face for that – we’re for people who want advice on existing pensions.’
So how does the process work exactly? Well, as a first step you get in touch with Profile Pensions and they take some basic information from you about your existing pensions. Profile Pensions then writes to those companies to find out as much as possible about your pension – transfer charges, flexibility, restrictions, that sort of thing. They will also do a fact find with you, to determine things like your attitude to risk, (I scored about as high as it’s possible to score last time I did one of these), and then they review everything and recommend whether or not you should switch.
They also offer a pension tracing service to help you track down pensions you may have lost track of.
It’s worth noting that up to this point, there is NO CHARGE. I think a lot of people worry that getting financial advice is a bit like going to see a solicitor – that you’ll be charged hundreds of pounds for every ten minutes – but it’s not like that at all. If at the end of the review process Profile Pensions decides that you’re better off sticking where you are, then it will cost you nothing. Profile Pensions will only charge at the point of switch, and these fees come out of your pension fund, so there are no upfront charges for you. They will only recommend a switch if it leaves you better off long term, taking into account the cost of switching.
‘Our fee for switching is 2.95%, explained Michelle, ‘which is capped at £75,000. We have an ongoing management charge of 0.6%.’ No hidden charges here then. ‘We also show the impact of the charges over time,’ says Michelle. ‘If we work out that it’s not in your best interests to transfer because of costs, then we won’t do it. We don’t want anybody to end up worse off.’
Because of recent pension reform, return on investment isn’t the only factor to consider when thinking about switching your pension. You also need to think about flexibility – does your pension give you the option to take out a lump sum at 55? Are you forced into buying an annuity? Can you continue investing past retirement? Profile Pensions will consider this for you too, to make sure your pension gives you the flexibility you need on retirement.
Once you’ve got your pensions where you want them, you can also start making contributions if you’re not already. Say you’ve inherited a pension through divorce for instance – Profile Pensions can help you get your money invested in the right pension for you, and then start making your own contributions.
One question that a few people asked me when I told them I was writing this post, is how do you know that you’re getting advice that’s right for you and not being sold just one product? I put the question to Michelle.
‘We cover the whole of the market,’ she explains, ‘which means we have access to roughly 27,000 different funds. We look at all kinds of factors, including performance, charges, risk and flexibility, to choose the pension that’s right for you. Our fee comes from the customer, so at no point do we earn commission from the provider. This means we’ve no incentive at all to recommend particular pensions – we’re totally independent.’
Good to know right?
You have literally no excuse now.
Check out Profile Pensions and see how simple it can be to get your pensions sorted. There’s nothing like getting long term finances in order to make you feel like you have won at adulting.