Pension review: Do you need one?
As budgets are getting tighter, many experts are urging workers to look over their pensions and get a professional review of their funds to guarantee they can one day have a comfortable retirement.
With businesses like Aon announcing cuts in company contributions to employees' retirement pots, and several other firms expected to follow, it might not be a bad idea to go over your pension plans.
Johanna King examines the benefits of completing a review now, what you should expect from the process, and who exactly needs to be looking at their retirement funds.
Importance of a review
The volatile market, to which most pensions are somehow tied, demands that individuals review their funs and make sure they are still saving in a way that's right for them.
Dave Lowe, pensions management director at Zurich, says: "In the current climate, it's more important than ever for advisers to work closely with their clients to review their investment strategy. Now is the time when clients need advice."
Zurich is recommending that people and advisors should not wait for the next scheduled review to go over pension funds.
Richard Eagling, head of investments, life and pensions at Moneyfacts.com agrees: "Volatility of the stock market has made is essential that everyone look at how they are saving for retirement, even if retirement is 20-plus years away."
But even in a stable market, is it still sensible to have a regular review.
Jennifer Storrow, managing director at Gee & Company, a firm of independent financial advisors (IFAs), explains: "There is nothing more important than having a review and that is because things change over time."
Recommendations for how often a review should be conducted vary, with many suggesting annual reviews are sufficient.
"The minimum you need to have a review is every two years, but ideally it would be every six months," Ms Storrow says.
She adds that a review every half year is generally only completed by those who are paying a monthly fee for the regular service of a financial advisor.
Sharon Bratley, financial planner at Fairinvestment.co.uk, agrees that a regular review is essential.
"It is important that people keep on top of what they've got so that they aren't greeted with any nasty surprises and should any adjustment need to be made to investments, they can be made in good time," she says.
Mrs Bratley adds that another benefit of IFAs is that they can help wade through complex and changing tax and pension laws - including making yearly allowances are maximised.
"As it is no longer possible to utilise previous unused years' pension allowances, it is important to start your planning early, to make the most of this year's allowance," she says.
"This can be a complicated area for most people and so it is important to look at this in conjunction with an independent financial adviser, and for those with more complicated affairs, possibly even a tax adviser."
Another benefit of frequent reviews is the ability to better shield investments from the market.
A regular pension review could have helped savers to reduce risk before the credit crunch hit, Mrs Bratley suggests.
"Reviewing your investments over the past couple of years could have meant reducing exposure to commercial property and banking shares and potentially taking advantage of some good fixed rate deals on deposits, both of which could have helped reduce potential losses," she says.
What is a pension review?
A review in generally completed with an independent financial advisor, or IFA. The goal of a review is to ensure pension expectations are realistic.
Jim Reeve, chief executive at Positive Solutions, says: "Pension reviews are a key advice area. With many clients in need of good quality advice, IFAs are well-placed to deliver a great service."
A review will evaluate things like whether current pension contributions are sufficient and in line with retirement expectations and attitude towards risk.
A regular pension review also should ensure that you don't have any unwanted surprises when it comes to your retirement.
Ms Storrow says that a review usually consists of going over finances and giving recommendations on what can be done to improve a financial situation.
"Most people who have a review have all their finances reviewed, not just their pensions," she says.
Costs varies of reviews vary though. For a moderate estate with around five different places money is invested, it can cost around £300 for a fee-based service.
For customers with larger, more complicated funds, however, the review will cost more.
Ms Storrow says: "The depth of review a customer wants determines the price."
Each review will be different, but there are some common areas which will normally be addressed.
IFAs will usually ask:
- When do you want to retire?
- How much do you want your pension income to be and how much are you willing to invest?
- Do you want more control over investment decisions, or do you want to leave it to the experts?
The information given will help determine the effectiveness of your current pension in relation to retirement goals and help pinpoint adjustments that need to be made.
Before sitting down with an adviser, some thought should be given to retirement plans, including:
- What pension savings do I have and how is it invested?
- Could changing the way the money is invested help?
- Do I want all my pension savings in one place?
- Do my current plans provide the flexibility I want?
- Who should get a review?
Fairinvestment.co.uk found 61 per cent of Brits have been investing into a pension pot of some description - and every single one of those people should get a review.
"People often take out a pension plan and forget about it until a couple of years before retirement, says James Caldwell, director at Fairinvestment.
"But, like anything, people should be planning ahead or they could end up disappointed."
For people with pension pots under £50,000, there may not be much that can be done until the pot grows a little bigger.
But if pension value is higher, Ms Storrow "could not advise more strongly" that people review their pensions, especially with the changes in the economy.
Nicola Green, spokesperson for Zurich, especially urges upcoming retiress to examine their funds.
"For those people in their fifties and above, approaching retirement, reviews are more important than ever to ensure they are on track to reach their retirement goals," she says.
But reviews are important for everyone, not just those ending their working years, Ms Green warns.
"We believe it is important that people take an active approach to financial planning, particularly in light of recent market turmoil and falling investment returns," she says.
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