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Reviewing existing pension plans

Most people will have a number of different pension plans accumulated during their working life.

It is important to review these regularly to ensure that they remain suitable for your objectives and investment risk profile and, of course, to assess whether they are likely to provide the retirement income you require. 

Final salary schemes

Final salary (also known as defined benefit) schemes provide retirement benefits linked to your period of service with an employer and salary. Pension income is calculated as a fraction of salary (often 1/60th of salary for each year of service) and at retirement age pension income can be exchanged for tax-free cash.

If you leave service before retirement age you become a deferred member and have a deferred pension which becomes payable at retirement age.  

The benefits are increased between date of leaving service and retirement age to offset the effect of inflation.

Many of these schemes have significant financial deficits and therefore may not be able to provide the benefits promised in retirement.

You may have concerns about the scheme’s ability to provide your retirement benefits, or simply wish to consolidate your pension benefits for ease of future administration, or to seek to improve the benefits at retirement with investment growth.

We can help and advise you in relation to these benefits by providing a detailed analysis of the benefits available from the scheme and comparing them with the alternative options available in a new employer’s scheme, section 32 buy out bond or personal pension plan.

Money purchase plans / personal pensions / retirement annuities

In these plans a fund of money is available at retirement age from which you take tax-free cash and an income. The size of the fund at retirement age depends on, among other things, contributions paid in, charges levied by the provider, and investment returns prior to retirement.

For money purchase schemes and group personal pensions from previous employment you may wish to consolidate these with other arrangements to simplify your affairs or to seek a coordinated investment strategy suited to your investment risk profile and objectives.

We have sophisticated risk profiling software and fund analysis tools that allow us to identify where your money is invested and whether it is suited to your requirements. We can analyse the ‘efficient frontier’ for your risk profile and demonstrate the benefits of a diversified and well managed investment portfolio for your pension fund.

April 2001 saw the introduction of stakeholder pensions which are simple products with low charges and a limited range of investment funds. Many pension companies did not reduce charges on their existing business.

Generally, charges for new plans are lower than existing plans.

The investment returns of existing plans may have suffered due to falling bonus rates on with profit funds, change of fund manager, or closure of the pension company to new business.

More modern personal pension plans often have extensive fund ranges from so called third party or external fund managers so you are not limited to a small range of funds from the host pension company.

We can analyse your existing plans and prepare a detailed report for you explaining the charging structure, comparing it with more modern contracts and advise on the continuing suitability of the chosen investment funds to your circumstances, objectives and investment risk profile.  

Once we have analysed charges and investment returns we can recommend any changes that are necessary and also implement any changes that are agreed.

Section 32 buy out bonds

These products are imaginatively named after the relevant section of a Finance Act that gave rise to them.

The product can only hold pension benefits transferred in from a previous employer’s occupational pension scheme. Usually before the plan started you would have been told the ‘critical yield’ which was the investment return required after charges in the Section 32 to provide benefits at retirement of similar value to those in the previous scheme.

Many older contracts have limited investment options (a with profit fund only is not uncommon) because the plans contain ‘guaranteed minimum pension’ (GMP for short) which is the term used to describe pension benefits from contracted out employment i.e. your State Earnings Related Pension Scheme (SERPS) pension.

You may wish to understand how these benefits have changed over the years and consider your options for the future. Alternatively you may wish to review whether the plan is achieving the critical yield and if not what your options are for the future.

We can provide a detailed report tailored to your circumstances, objectives and risk profile and consider what changes if any should be made to the plan. If any changes are recommended and agreed we can implement those changes as required.

For more information and advice please contact Expert Financial Solutions.

Updated: March 2009