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Pensions ignorance – a real danger as you approach retirement

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Thursday September 26, 2013 at 10:00am
According to research published in the FT 77% of people in their 50s and 60s didn’t know what their pension fund was invested in. Worst still 71% had no idea how their pension was performing.

I find these results staggering. As a Chartered Financial Planner I consider it my job to make sure my clients have at least an annual review to look at how their investments, and especially their pensions, are performing and whether changes need to be made in the mix of investments, the investment vehicles and so on, to ensure they are on track to achieve their personal financial goals.

Whilst it’s true that not every client wants that review, or perhaps fully appreciates the value, it is an essential part of the role we as financial planners and advisors play. Especially for clients in the age group approaching retirement, where a difference in performance of a few per cent can make a significant difference to how comfortable their retirement will be.

Why is it so important to review your pension pot regularly?

Aside from the obvious – that it’s your money, is meant to be for your retirement and you shouldn’t just trust to luck that it will provide the level of pension income you need – there are some other key reasons to keep an eye on your pension investment.

The investment opportunities available within pensions change regularly, as can performance of different funds, so in my view it is essential to review both fund choice and investment performance. An annual statement provides you with the headlines figures on the value of your fund. Whilst you might need some professional help in deciding whether the funds are performing as well as they could you should also look to this valuation to establish whether it’s likely to deliver a pension income to meet your lifestyle needs in retirement and if not take some action to put that right.

Perhaps the most important point for those approaching retirement is that their risk profile often changes, as the day of retirement approaches. And, as you’ve heard me say many times before risk and return are related. So if your attitude to risk changes and is reflected in your investment choices, your likely returns will change too.

If you are a business owner or director of a company the type of pension you choose could make a significant difference to the return you secure. Don’t overlook the benefits available through Small Self-Administered Schemes (SSAS) and a Self Invested Personal Pension (SIPP). The additional flexibility of this type of pension often provides the solution to otherwise difficult business problems.

The FT report talked about there being no middle ground between those people who review their pensions regularly and those who put their head in the sand and adopt an ‘ignorance is bliss’ attitude. There surely has to be a middle ground – and that should be where individuals review their pension pot at least annually and take advice if they are unsure on performance or future investment decisions.

Andy Parker
Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here