September 2007

Q & A - PENSION PLANNING

Q. I have just passed my 50th birthday, I am a member of my employer's pension scheme, but I have changed jobs quite a lot and I have various "frozen" pensions from the past. I have no idea what they are worth and I like the idea of consolidating these into one plan. Would you recommend this course of action?

A. The idea of a "frozen" pension - an employer sponsored pension which did not increase in value between when someone left a scheme and took retirement - is thankfully becoming a thing of the past. Successive legislation has gradually improved the rights of the millions of people in this situation, so that such benefits must in general at least keep pace with inflation.

Similarly, if you have personal pensions from the past, the fund will still be invested despite your not contributing to it.

However, this does not mean you should necessarily just leave things as they are. There can be very valid reasons for transferring existing funds. Why continue to pay high charges in an old fund, when by transferring, the future performance of the fund could be dramatically improved simply due to reduced charges?

Another reason for transferring a personal pension is that the investment performance of the existing provider could be very poor. Whilst there can be no guarantees of an improvement, many modern pension plans offer "external" fund links to excellent fund managers - these options simply were not available in the past.

Consolidating past pensions into one modern low cost plan can be a worthwhile exercise because of the lower charges and improved investment choice that can ultimately increase your standard of living in retirement. It is not a straightforward decision and as always, it is essential to seek professional financial advice.