Personal pensions have become something of a mystery in recent years, as successive governments have continually changed the rules. However, the reality is that pensions have been, and remain, a tax efficient way of saving for retirement and should be a high priority when planning for your financial future.
Pension Consolidation and Transfers
Many people acquire several personal pension plans or company pension schemes as they move from job to job. This can lead to a disparate collection of pension arrangements that are difficult to keep track of and, in some cases, represent poor value for money (so-called ‘Zombie’ or ‘Dinosaur’ funds in particular). One solution is to consolidate previous arrangements by transferring to a single provider. This makes it easier to monitor your investments and manage everything from a single point of control. It can also give you flexibility and control unavailable through your existing providers. However, transferring is not always the best option, particularly if you have accrued benefits through a previous employer’s final salary scheme, and should only be considered once a thorough analysis has been conducted.
For many people, the traditional method of purchasing an annuity (usually in the form of a lifetime income) may not be the best option. If you have a personal pension, you will have much flexibility in terms of when and how you access your retirement benefits. An alternative is to leave the bulk of your pension fund invested, and withdraw as required. This gives you more flexibility and control.
Pensions and Divorce
After the matrimonial home, pension benefits can represent the most valuable asset. In any divorce settlement, accrued pension benefits will be taken into account, including company schemes, personal pensions and additional state pensions (but not basic state pensions). There are several options for splitting pension rights, and it is vital to take specialist advice to ensure a mutually beneficial arrangement.