By Jessica List, Pension Technical Manager at Curtis Banks
25 March – 10 April marks this year’s Great British Spring Clean – a great time to explore garden sheds, empty overstuffed drawers, and exorcise attics.
Perhaps you’ve got a new client whose spring cleaning has unearthed an old pension or two; or perhaps one whose retirement plans could do with a general tidy up. We’re here to help with our tips for giving defined contribution pensions a spring clean.
1) Check the product, charges, and investments
The biggest risk with pensions that have been left to gather dust is that they’re no longer working as hard as they could be for the client. Recent research from the Institute of Fiscal Studies (IFS) has shown that older deferred pensions are much more likely to have high charges (compared to more recent products) and to be in unsuitable investments that no longer meet the client’s needs and objectives.
It might be that the product simply doesn’t offer the investments, charges, or other options that the client needs, and they’ll want to consider transferring their old pension. In that case, they’ll need to be careful about any guaranteed benefits attached to the pension. Depending on the nature of those protected benefits, a block transfer may be required to preserve them in the new pension.
2) Check contribution amounts and strategies
Thanks to auto-enrolment, it’s much more likely that new clients will already be saving into a pension than it was a decade or so ago. However, there’s also a reasonable chance that despite this, they will not have given much thought to their pensions, and how much they might actually need to save to meet their retirement goals. Perhaps they’ve been saving the same amount for years without checking whether they’re still on track or considering whether their needs have changed. It’s also possible that people are not aware of the extent of any matched contribution offers from their employers and are not taking full advantage.
Clients with multiple pensions may also want to reconsider where they pay their contributions. For example, it’s not uncommon for people to have their regular employer and personal contributions go to their workplace scheme, but pay ad-hoc contributions to a different scheme – potentially one that has different investment or benefit options that they wish to take advantage of.
3) Check expression of wishes
This is a key consideration for older unearthed pensions that’s easy to overlook. First and foremost, it’s important to check that there is an expression of wishes in place, as unfortunately it’s still all too common for providers to come across pensions where one hasn’t been made at all. However, even if the pension does have an expression of wishes in place, it’s worth considering refreshing it – particularly if it was made before the death benefits rules changed significantly in 2015. Those rule changes opened up planning opportunities for a much wider range of beneficiaries. Many people also found that there were more tax efficient strategies to consider within the new rules.
Even if the client is still happy with who they’ve nominated, it’s worth considering the following:
- Might the client wish to nominate any ‘alternative’ beneficiaries in case their wishes can’t be followed?
- In the event of unforeseen circumstances, would the client want beneficiaries’ drawdown to be available to any beneficiary who might be chosen?
- Does their provider offer the options that might be most appropriate for their beneficiary/beneficiaries?
4) Check retirement age
The majority of people probably aren’t planning to retire in their mid-50s. Of those that are, many are likely to be wealthier clients with sufficient non-pension sources of income to fund their retirement while waiting to reach normal minimum pension age (NMPA). However, with the NMPA set to increase to 57 in 2028 and further increases not being out of the question – it’s been proposed that the NMPA should stay 10 years below state pension age – it’s well worth reviewing the plans of any clients hoping for an early retirement.
Clients might not find revising pension plans to be the most exciting of tasks, but it’s well worth the investment in the long term. Happy spring cleaning everyone!
