A personal pension plan / scheme is an individual contract, between you and the insurance company. Personal Pension legislation became effective in 1988, so we occasionally see plans that have been in place for over twenty years. Since their beginning in the 1980s, personal pensions have become a lot cheaper, so there’s sometimes a good reason to replace the old policy with a new one.
Older personal pension contracts may include a benefit known as waiver of contribution benefit. This is an insurance benefit; it credits your pension contributions for you if you are unable to work for more than six months. It sometimes pays out if you are unable to do your own job. If your job had a lot of manual tasks, or was considered to have higher risk of long-term sickness when you took out the pension, the insurance may not pay out unless you are unable to do any job. We would consider this to be quite a valuable benefit because very few pension providers these days still offer waiver of contribution benefit.
You also need to consider investment options – does the pension have a good range of investment options for you to choose from, and do you know what to do with the choices? Some older plans offer very limited choices, but bear in mind that one fund can be enough if its risk profile is right for you and if its performance is good enough and if its charges are competitive so that high costs do not eat into your pension.
Also, the older policies often have very limited fund choices. These days, we expect to be able to invest from a wide choice of specialist funds, as well as having a core of low-cost tracker funds to choose from. Some older policies offer only one fund, which is usually the “With Profits” fund.
Some of the very old ones contain enhanced terms that apply only at retirement, such as guaranteed or enhanced annuity rates. You need to quantify and clarify the guaranteed annuity rate with extreme accuracy. Does your guaranteed annuity rate apply on one day only? For one annuity profile only, eg is the rate only guaranteed if you choose a pension payable yearly in arrears and without a pension for your widow/er? Or can you make use of the guaranteed annuity rate across a wide range of ages and annuity profiles?
You need to balance the loss of those benefits against the lower costs of running your pension scheme every day.
Also, the amount offered for transfer to another policy can be reduced, due to penalties for ending the contract early. Again, careful comparison is needed. If you’d like our help, let us know.
Also, you may also have a rebate-only personal pension, which has been funded from your national insurance contributions, instead of direct contributions from you.
We typically raise twenty one initial queries when we evaluate personal pensions. We frequently need to clarify the responses we receive. Our pension review service takes the hassle out of investigating your old pensions, and we take responsibility for our advice.
We’re qualified and experienced to look at each pension in turn, to tell you what you need to know about it. We can project what that pension could be worth when you retire and tell you what to do about it. Do you want to know whether you should leave it where it is? or combine it with other pensions you have left behind? or add it to your new employer’s pension? If you would like our help