I recently wrote an article about taking control of any previous pensions that you may have accrued during your working life (read my article here) so you can start to contact these pension schemes and establish the current cash values, in order to make your own informed decision on whether you should then transfer these into a single plan.
This is best illustrated using a real-life example of someone I know, who a few years ago started to think about all his previous employers and what pension entitlement he had accrued. He established that since he started work at age 18 (25 years ago) he had 6 different previous employers, so he started to contact them to establish what pension provision he had. The key outcomes from this exercise were:
Two of the employers were no longer trading – however the pension scheme was still intact, and he was able to get transfer values from these schemes. If you need help tracing previous pensions my article here will help.
One of his schemes was a deferred final salary scheme (Defined Benefit or DB for short), which did not have a cash value as such, but instead will provide a guaranteed pension for life at his normal retirement date. It also included the benefit of a 50% widows or spouses pension with increases each year in line with RPI or 5% (whichever is lower). Most employers no longer offer these schemes as they are costly to run, and the investment risk lies with the employer rather than the individual. If you have one of these schemes (either from a previous or current employer) then lucky you! – generally speaking most people are better off leaving these well alone in light of the guarantees they offer.
The other 3 employers were all still trading, and it was relatively straightforward to obtain a current pension valuation for each scheme.
Having then made sure he was not giving up any enhanced guarantees, and there were no large exit penalties for transferring out, he was then left with:
Five previous pension scheme valuations from his defined contribution schemes (DC for short) – collectively, the total valuations were far higher than he imagined which in itself made the effort worthwhile.
One deferred Final Salary scheme (DB) which was to remain in place in light of the guaranteed nature of this type of scheme.
His decision was then how to amalgamate these five DC schemes into a single plan that he could control and use the funds to make his own investment choices.
This is where SIPPs come in as they provide a single platform to receive any previous defined contribution schemes (or similar) that you may wish to transfer in, so you are in a position where you control your own investment choices with your hard-earned previous pension cash. SIPPs offer access to a huge range of investment choices such as Investment funds, Investment Trusts, Exchange-Traded Funds (ETFs) and the ability to directly invest (trade) in both the shares of UK and global companies.
There are a number of SIPP providers in the UK – the 3 largest UK SIPP providers are:
There are many others, and a quick google search will no doubt give you lots of other providers to consider if you decide to use a SIPP for this purpose. There is also a very useful in-depth SIPP comparison tool here.
Nb. None of the links above are affiliate or paid links, and should not be construed as advice or recommendations – I have put them here just for ease so you can quickly access their sites and carry out your own research.
I appreciate all of this can be quite daunting especially if you are just starting out on your journey through the retirement maze, and have not had much experience of pensions in the past. My next article will be to discuss what options are available to help you, such as obtaining professional advice and what you need to consider before going down this route.In the meantime, there is no harm at all by starting to understand your total current position by obtaining:
Your State Pension forecast (refer to my article here)
Previous employer pension details (scheme type – DC or DB) and current transfer values for any DC scheme – at this stage you are just gathering information to help you make your own informed choice
If you have a previous deferred final salary scheme (DB scheme) then it would be useful for you to get an up to date forecast on the (guaranteed) pension you will receive at your normal retirement date
The current value and contribution rate of your existing DC workplace or personal pension (I will be discussing these topics soon)
And of course if you are currently contributing to a defined benefit scheme then ask your employers pension team to provide you with a pension forecast at your normal retirement date, along with the benefits that come with this type of scheme, such as increasing pension in retirement and widows / spouses benefit. I will stress again that if you are lucky enough to have either a previous or current final salary scheme these should be left alone. Whilst there are options to obtain a cash value for these, it would require professional advice in most instances, but I will discuss this in a future article.
These five points will allow you to be able to quickly build up a picture of your overall current projected pension forecast, and by continuing to read my articles I hope to help you through The Retirement Maze.
Catch up soon (and don’t forget to subscribe)