Pension consolidation

Mitigating lost investment opportunities, exposure to undue risk and higher costs

Most people, during their career, accumulate a number of different pension plans. Keeping your pension savings in a number of different plans may result in lost investment opportunities and unnecessary exposure to risk.

However, not all consolidation of pensions will be in your best interests. You should always look carefully into the possible benefits and drawbacks and, if unsure, seek professional financial advice.

Keeping track of your pension portfolio
It’s important to ensure that you get the best out of the contributions you’ve made and keep track of your pension portfolio to make sure it remains appropriate to your personal circumstances. Consolidating your existing pensions is one way of doing this.

Pension consolidation involves moving, where appropriate, a number of pension plans – potentially from many different pensions’ providers – into one single plan. It is sometimes referred to as ‘pension switching’.

Pension consolidation can be a very valuable exercise, as it can enable you to:

•    Bring all your pension investments into one easy-to manage wrapper
•    Identify any underperforming and expensive investments, with a view to switching these to more appropriate investments
•    Accurately review your pension provision in order to identify whether you are on track

Why consolidate your pensions?
Traditionally, personal pensions have favoured with-profits funds – low-risk investment funds that pool the policyholders’ premiums. But many of these are now heavily invested in bonds to even out the stock market’s ups and downs and, unfortunately, this can lead to diluted returns for investors.

It’s vital that you review your existing pensions to assess whether they are still meeting your needs – some with profits funds may not penalise all investors for withdrawal, so a cost-free exit could be possible.

Focusing on fund performance
Many older plans from pension providers that have been absorbed into other companies may have pension funds which are no longer open to new investment – so-called ‘closed funds’. As a result, focusing on fund performance may not be a priority for the fund managers.

These old-style pensions often impose higher charges that eat into your money, so it may be advisable to consolidate any investments in these funds into a potentially better performing and cheaper alternative.

Economic and market movements
It’s also worth taking a close look at any investments you may have in managed funds. Most unit-linked pensions are invested in a single managed fund offered by the pension provider and may not be quite as diverse as their name often implies. These funds are mainly equity-based and do not take economic and market movements into account.

Lack of the latest investment techniques
The lack of alternative or more innovative investment funds, especially within with-profits pensions – and often also a lack of the latest investment techniques – mean that your pension fund and your resulting retirement income could be disadvantaged.

Significant equity exposure
Lifestyling is a concept whereby investment risk within a pension is managed according to the length of time to retirement. ‘Lifestyled’ pensions aim to ensure that, in its early years, the pension benefits from significant equity exposure.

Then, as you get closer to retirement, risk is gradually reduced to prevent stock market fluctuations reducing the value of your pension. Most old plans do not offer lifestyling – so fund volatility will continue right up to the point you retire. This can be a risky strategy and inappropriate for those approaching retirement.

Conversely, more people are now opting for pension income drawdown, rather than conventional annuities. For such people, a lifestyled policy may be inappropriate.

Consolidating your pensions won’t apply to everyone
The potential benefits of consolidating your pensions won’t apply to everyone, and there may be drawbacks to moving your pension plans – particularly so for certain types of pension. It is therefore vitally important to carefully consider all aspects of your existing pensions before making a decision as to whether or not to consolidate.

As well as whether the total size of your pension funds make consolidation viable, issues to take into account include whether your existing pensions have:

•    Loyalty bonuses
•    Early termination penalties
•    Guaranteed annuity rates
•    Integrated life cover or other additional benefits
•    Final salary pension benefits

The value of the investments in your pension fund can go down as well as up. Early investment losses can be particularly difficult or even impossible to recover. If your investments fall in value, you may need to reduce the amount of income you withdraw from your fund. If your investments fall in value, or fail to grow sufficiently, you may not be able to withdraw as much income in future. This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any product. Although endeavours have been made to provide  accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.

Professional financial advice you can trust
Many people during their career may accumulate a number of different pension plans, and maintaining these separate plans can be laborious and complicated, leading to lost investment opportunities, exposure to undue risk and higher costs. To find out how we could help you, please contact us for further information.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:
01527 880345
 
Visit our Website at:
www.pps-vet.co.uk
 

Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority 

 The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice.
Article Reference: PPS062014.GM26
Article Author: David Hodgetts
VIP Publication Date: 23/02/2015
 

BSAVA Congress 2015

Professional Practice Services are pleased to confirm we will be exhibiting again this year at the BSAVA Annual Congress held at The ICC and NIA, Birmingham from 9th -12th April 2015.

Please do come and visit us at Stand 602 for an informal chat about your Practice needs.

 

Alternatively do let us know if you would like a more in depth conversation as we are offering 1-2-1 meetings throughout Congress.

 

 

 

Your Success is Our Business
The PPS Group provide personal expert financial advice and consultancy services exclusively to the veterinary profession.  We've been providing successful financial solutions since 1997. Our team of experienced and knowledgeable staff can guide you through a sometimes unexpected financial minefield.

With personal visits to your practice, no call centres or push button phones, you can speak directly to the people who matter.

Financial Services through Professional Practice Services

• Independent Financial Advice for Practice Owners and Staff
• Retirement/Succession Planning
• Practice Finance
• Business Protection
• Partnership/Share Protection
• Investment/Pension and Wealth Management
• Family Protection
• Income Protection
• Mortgages
• Employee Benefits
• Workplace Pensions
• Business Consultancy

 

Call our friendly, knowedgeable team from a confidential, no obligation discussion:

01527 880345

 

Visit our Website at:

www.pps-vet.co.uk

Professional Practice Services is authorised and regulated by the Financial Conduct Authority. 

The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice.

Choosing the retirement option that's right for you

The freedom to choose how and when you access your pension

Your retirement should be something to look forward to, not worry about how to make ends meet. Whatever you want to do, understanding how to build up enough retirement savings and how pensions work should help you achieve your goals.

Your accumulated pension pot will have been hard-earned over years of work. It is only right you eventually have the freedom to choose how and when you access your money during your retirement.
Currently, people don’t have total flexibility when accessing their defined contribution pension during their retirement – they are charged 55% tax if they withdraw the whole pot. But from April 2015, people aged 55 and over will only pay their marginal rate of income tax on anything they withdraw from their defined contribution pension – either 0%, 20%, 40% or 45%.

How the current system works
Under the current system, there is some flexibility for those with small and very large pots, but around three quarters of those retiring each year purchase an annuity.

Current pension pot options
You can currently take up to 25% of your pension pot tax free.
With the remaining amount, you have these options:

•    If you are aged 60 and over and have overall pension savings of less than £18k, you can take them all in one lump sum – this is ‘trivial commutation’
•    A ‘capped drawdown’ pension allows you to take income from your pension, but there is a maximum amount you can withdraw each year (120% of an equivalent annuity)
•    With ‘flexible drawdown’, there’s no limit on the amount you can draw from your pot each year, but you must have a guaranteed income of more than £20k per year in retirement
•    Buy an annuity – an insurance product where a fixed sum of money is paid to someone each year, typically for the rest of their life

If you withdraw all your money, you are charged 55% in tax. Regardless of your total pension wealth, if you are aged 60 or over, you can take any pot worth less than £2k as a lump sum, as this classifies as a ‘small pot’.

Budget 2014 changes announced
Announced during Budget 2014, commencing 6 April 2015, from age 55, whatever the size of a person’s defined contribution pension pot, the proposal is that you will be able to take it how you want, subject to your marginal rate of income tax in that year. As previously, 25% of your pension pot will remain tax-free.

There will be more flexibility. However, for those people who continue to want the security of an annuity, they will be able to purchase one, and those who want greater control over their finances can drawdown their pension as they see fit. People who want to keep their pension invested and drawdown from it over time will be able to do so.

To help people make the decision that best suits their needs, everyone with a defined contribution pension will be offered face-to-face guidance on the range of options available to them at retirement.

Interim changes
A number of interim changes apply from 27 March 2014, prior to the proposed changes commencing from 6 April 2015.

These include:
•    The amount of overall pension wealth you can take as a lump sum has been increased from £18k to £30k. In addition, the amount of guaranteed income needed in retirement to access flexible drawdown has been reduced from £20k per year to £12k per year.
•    The maximum amount you can take out each year from a capped drawdown arrangement has been increased from 120% to 150% of an equivalent annuity.
•    The size of a small pension pot that you can take as a lump sum, regardless of your total pension wealth, increases from £2k to £10k.
•    The number of personal pension pots you can take as a lump sum under the small pot rules increases from two to three

Who benefits?
The interim changes will mean around 400,000 more people (according to the Government) will have the option to access their savings more flexibly in the financial year 2014/15.

From April 2015, the 320,000 people who retire each year with defined contribution pensions will have complete choice over how they access their pension.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of and reliefs from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any specific product. Although endeavours have been made to provide accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.
 
Retirement planning checklist
1. Always check your annual pension statement, and if you don’t receive one, ask for one.
2. You should pay as much as you can reasonably afford to your pension funds.
3. Consider receiving a higher income by deferring retirement (however, this is not guaranteed, as annuity rates, legislation and market conditions may change).
4. When buying an annuity, always shop around for the best deal.
5. You can continue to work in retirement, and your tax-free personal allowance increases from the age of 65.

Professional financial advice you can trust
This radical announcement to give retirees more choice as to how they take the income from their pension fund will mean that other options may now be given more consideration. These changes make it even more important, if you are approaching retirement, to seek professional financial advice in order to make the most of your pension pot. If you would like to find out how the changes could affect your future retirement plans, please contact us.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:

01527 880345

Visit our Website at:

www.pps-vet.co.uk
Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority.

The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice

Article Reference: PPS062014.GM14

Greater choice for retirees

Proposals to fundamentally redesign the UK private pensions system

Fundamental plans proposed to redesign the UK defined contribution pension system (as opposed to workplace final salary schemes) were announced as part of the Budget 2014 speech. This is the most far-reaching reform to the taxation of pensions since the regime was introduced in 1921, introducing new flexibility to the pensions system.

By further relaxing the rules around income withdrawals from pension funds, which will be introduced from 6 April 2015, people will have greater flexibility and choice about how they can access their money. Those who want to guarantee a regular income for life will still be able to purchase an annuity, of course.

Taking pension savings
This announcement means that people will be in a position to choose how they take their pension savings: for example, they could take all their pension savings as a lump sum, draw them down over time or buy an annuity.

The Government also intends to explore with interested parties whether those tax rules that prevent individuals aged 75 and over from claiming tax relief on their pension contributions should be amended or abolished.

Savings freedom
In the meantime, as a first step towards this reform, a number of changes have been announced to the rules. These commenced from 27 March 2014 and now allow people greater freedom and choice over accessing their defined contribution pension savings at retirement.

The changes are:
•    Reducing the amount of guaranteed annual income people need in retirement to access their savings flexibly, from £20,000 to £12,000
•     Increasing the amount of total pension savings that can be taken as a lump sum, from £18,000 to £30,000
•    Increasing the capped drawdown withdrawal limit from 120% to 150% of an equivalent annuity income
•    Increasing the maximum size of a small pension pot which can be taken as a lump sum (regardless of total pension wealth) from £2,000 to £10,000, and increasing the number of personal pots that can be taken under these rules from two to three

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of and reliefs from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This information does not constitute advice and should not be used as the basis of any financial decision, nor should it be treated as a recommendation for any specific product. Although endeavours have been made to provide accurate and timely information, Professional Practice Services cannot guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough review of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions.

Professional financial advice you can trust
This major announcement to give retirees more choice as to how they take the income from their pension fund will mean that other options may now be given more consideration. These changes make it even more important, if you are approaching retirement, to seek professional financial advice in order to make the most of your pension pot. If you would like to find out how the changes could affect your future retirement plans, please contact us.

Call our friendly, knowledgeable team for a confidential, no obligation discussion:
01527 880345
 

Visit our Website at:
www.pps-vet.co.uk
 

Professional Practice Services is a Veterinary Business Consultancy and Independent Financial Advisory Firm. Professional Practice Services is authorised and regulated by the Financial Conduct Authority
The Financial Conduct Authority does not regulate finance, will writing, commercial lending, taxation or trust advice.

Article Reference: PPS062014.GM09