Pension funds & wagon wheels
So, what connects pension funds and those confectionary staples from the 1970s/80s, Wagon Wheels, I hear you wonder. Put simply, neither of them will ever be the same size again. They have both survived over many years, however, come in a variety of wrappers, and at least they are still known by the same name; [I still yearn for a Marathon or some Opal Fruits]. But that is enough reminiscing – back to 2021 we come.
Because the size of your pension savings matters and if, like me, you have seen numerous governments of all political persuasions continuously fiddle around with pension rules and restrictions over the years, you will understand that there is a greater need to take professional pension advice now than ever before; pensions simplification is not how large swathes of the investing public see it. Much has been written in recent years about the changes to pension tax rules, whether that relates to ‘money-in’ or ‘money-out’, including a great article by my colleague Daniel Wood in May this year:
But what about non tax-related traps & pitfalls that are present now? On Pension Awareness Day this year, 15th September, it is an ideal chance to flag some of these issues that all pension savers need to be aware of, but also provide reassurance that they can all be navigated.
Putting my cards on the table, I remain a huge advocate of investing into pensions and, for most investors, the reduced lifetime allowance and restricted annual allowances that exist now will not give much cause for concern. However, the following are a few tips for all pension savers:
The State Pension is still a great benefit, and you should ensure that you maximise your entitlement to it. With the modern workforce working more flexibly, taking career breaks, becoming self-employed, etc. it can be easy to end up with ‘missing years’ of qualifying National Insurance (NI) contributions. You will need 35 years of qualifying NI to accrue a full State Pension under new rules introduced in 2016, so everyone should take time to check their NI record every few years if they’re in any doubt, and certainly as they approach State Pension age, by getting a Pension Forecast. You may still be able to pay top-up contributions; if so, this is likely to be a good investment.
Advisers are often asked “what happens to the money if I die before I retire?” Most pension schemes will let you leave it to another person. For defined benefit/final salary schemes, this usually has to be a dependant of the person that dies, such as a spouse, civil partner or child under age 23, although schemes may now consider payment to someone else outside of this group, but this is likely to attract a tax charge. For defined contribution schemes, including SIPPs, stakeholder & personal pensions, almost anyone can be nominated. However, the key thing is that a nomination should always be made, normally by way of an ‘expression of wish’, which the pension provider or scheme trustees will use as guidance. But this is guidance only and is not legally binding on the pension provider; for example, if they believe it may be out of date due to a change of marital or family circumstances. This means that if you divorce or dissolve a civil partnership, and then re-marry, (like approximately 1.3 million Brits approaching retirement age have), a new spouse or partner may not inherit, unless your pension paperwork is updated.
It’s especially important to be on top of your paperwork if you’ve changed jobs, have a few company or personal pension schemes to your name, or have never made any expression of wish. In 2018, Royal London estimated that around 750,000 pension investors in the UK could end up with their pension pot being distributed on death in a way they don’t want. The good news is that your pension adviser can organise this for you, and they should be checking your wishes on a regular basis. Whilst we’re talking about keeping things updated, don’t forget to tell your various pension providers when you move house; only around 1 in 25 of us do! There’s around £20 billion worth of unclaimed UK pension pots already – don’t let your savings add to that tally.
Now, for the last of today’s pension pitfalls, but certainly one of the most important. Although the Financial Conduct Authority (FCA) banned pension cold-calling back in 2019, your hard-earned savings could still be snatched away by an increasing number of ever-more sophisticated fraudsters, both in cyberspace and the real world. Before making any changes to your pension investments, and certainly before drawing anything out, please take time to consult a financial planner or pension professional, and then check that their firm is registered with the FCA. Any firm worth its salt, or one that you would happily share your last Rolo with, will be happy to provide all the information you need.
PS – many, many other chocolate bars and confectionery are available for you to enjoy in retirement.