Pensions: How to Take Control of Your Pension Pots
If you have changed jobs at least once in your career so far, then the chances are that you have accumulated more than one company pension pot. You might even have a personal pension of your own that you have previously paid or continue to make payments into.
It is easy to forget about your pension pots, or to file away annual statements and worry about them some other time. In fact, few people actually take the time to read through their pension statements to evaluate their worth, better yet take decisions that improve the state of their pension pots.
The key to taking control of your pensions and having a better say over your retirement planning is to keep track of your pension statements. Get this right and you will be well on your way towards a more profitable retirement.
Understanding your Pension StatementsIt all starts with reading your pension statements thoroughly. Sadly, many people find these annual statements to be nothing more than numbers on a page, without ascribing them much more meaning.
It is worth taking the time to read through these statements carefully, to determine your overall pension pot. That way you can make better decisions about your different pensions, spot the ones that are underperforming and make changes that can have dramatic long-term effects on your overall wealth.
Closer Analysis of your PensionsYou can start by creating a simple spreadsheet. List all of your pensions down the left hand side, then start filling out the following sections.
Begin with inputting the retirement age determined by the scheme. Some company pension schemes allow for a retirement age of 60, and some allow members to bring their retirement forward by a few years. This means that you can withdraw your pension pot sooner, so it is well worth finding out which retirement ages apply to the schemes you belong to.
Next, you should determine whether the pension is still ‘active’ or deferred. An active pension is one that is still being paid into, whereas a deferred pension is effectively a pension that has been preserved in time, usually because the employee left employment.
No more contributions are paid into the pension, so the money already built up in the pension pot accrues slowly without any additional input. Once the pension maturity age is reached the pension can then be paid out to the
Next, you should determine whether your pensions are all money purchase or final salary schemes. For those pension pots that are classed as money purchase you should be able to get a forecast of the fund’s total value when you reach retirement age (these forecasts are usually based on how much the fund will be worth if it grows at a rate of 2%, 4% and 6% each year till retirement).
Identifying Your Pension Positives and NegativesNow that you have grouped your pensions, you should be able to spot any potential weaknesses in your pension pots. Start by finding out what they have in common and those areas that overlap. Then consider whether your money could be made to work harder.
For example. If you have three separate pension pots, of roughly the same value, but all of them invested in fairly similar defensive UK equity funds, then you might consider putting some of that money to better use by putting it into higher risk investments, perhaps in China or the Far East.
By doing this you are diversifying your investment, and your pension will be less dependant on the performance of the UK stockmarket for its overall growth. Such a plan may boost your total investment, without significantly increasing the total risk of your portfolio.
Alternatively, you may review your pensions and find that they could benefit from carrying less risk. Perhaps if you are approaching retirement you may look to reduce your allocation to equities and increase your pension holding in fixed income assets, which are considered less risky.
By doing this you might be give your investments a less bumpy ride the closer you get to retirement age.
Good pension planning is all about knowing what you have accumulated and calculating the right combination of investments to cover all eventualities. Use your statements to draw up a comprehensive plan and you’ll be able to control your total retirement pot.