Myths and misconceptions are common in the world of pensions. Some start from an assumption or misunderstanding; some come from self-appointed experts who think they know what they’re talking about and others are the result of those who haven’t taken good advice and have tripped-up on reality.
To dispel some common myths:
- If my employer goes bankrupt I lose all my money…
Not so! How you’re protected depends on what type of workplace pension scheme you are a member of. A defined contribution scheme is run by a pension provider, not your employer, which means your pension pot won’t be affected. If you’re a member of a defined benefit scheme, your employer has a legal duty to ensure there’s enough money in the pension fund and they’re prohibited from accessing the fund if they’re in financial trouble. But if, for whatever reason, they really can’t pay your pension then you’re usually protected by the Pension Protection Fund (PPF). Please visit the Pension Protection Fund website for more information.
- If my pension provider goes bankrupt I lose all my money…
Not so! If your pension provider is authorised by the Financial Conduct Authority – and it certainly should be – and they can’t pay your pension, you’ll receive compensation from the Financial Services Compensation Scheme (FSCS). Please visit the Financial Services Compensation Scheme website for more information
- If I die I lose all my money…
That depends! Some people will lose money, others won’t, depending on the type of pension you have and how old you are. It’s a very complex subject – for more information, please see the page ‘Tax on a private pension you inherit’ on the government’s website. If you have an annuity, it depends on the options you chose when you bought the product. If you chose a joint-life annuity, payments should continue to your spouse or partner. If you chose a guarantee period or value protection option, income or cash can be paid to your beneficiaries. But, of course, you have to make these choices before you die: they can’t be applied retrospectively by a potential beneficiary.
- All my money is invested in the stock market and is high risk…
‘Risk’ is at the heart of every investment strategy and it’s vital to decide how much risk you’re prepared to take. Your investment adviser should have carried out a simple, but revealing, psychometric test that determines your ‘attitude to risk’ and then used the result to select and recommend investments carrying an appropriate level of risk. If you think your money is invested in areas that are too high risk you should consider changing to a low-risk fund or a spread of low to high-risk funds. You should continually review your pension plans to ensure they remain ‘on track’ and stay in line with your current attitude to risk. For more information, please see How pensions work: attitude to risk.
- The pension provider/adviser charges are so high that my money never seems to grow…
Unfortunately, that could be true – but it could be easy to rectify. A pension is a long-term saving scheme so it’s important to keep charges to a minimum as, over time, high charges will make a significant hole in what you ultimately receive. In 2001 the government introduced ‘stakeholder’ pensions which capped annual management charges (AMCs) at an initial 1.5%, falling to 1.0% after 10 years. However, the rules didn’t apply to pension schemes that started before that date and, although some pension scheme providers reduced their AMCs, others didn’t – some are still charging substantially more than 3.0%. In 2013 the Office of Fair Trading (OFT) raised ‘significant concerns’ over the number of workplace pension schemes that ‘offered poor value due to high charges’, telling regulators, the government and industry, to address the issue but, understandably, there’s a degree of inertia within the industry. If you have a pre-2001 workplace pension you should check the level of AMCs (and other charges) and, if you think they’re too high, contact your scheme provider and ask them what they’re going to do about it. If you’re not satisfied with their response, consider transferring to a more cost effective scheme – but get some expert advice from a qualified independent financial adviser first.
- Once the money is in my pension scheme I can never have it all back again…
Not necessarily! There are two things to consider: your age and the scheme’s terms and conditions, especially those relating to the scheme’s ‘nominated retirement date’. New pension legislation introduced in April 2015 – popularly known as ‘pensions freedom and choice’ – means that you can access your pension pot when you reach the age of 55 and, if you want, you can have the whole pot in cash (although you must think about the tax implications of doing so). If you’re under 55 you may still be able to access your money but you’ll need a very good reason – for example, ill health or being in a specialised occupation – and have the trustees’ or scheme provider’s permission. Although you’re entitled to cash-in your pension pot when you reach 55, you may still have a problem if you haven’t reached the scheme’s ‘nominated retirement date’, the contractually agreed date from which you’re due to start receiving your pension. If this is the case, you may have to wait until then or, if you can break the contract, probably accept significant punitive charges which may reduce the plan’s value considerably. For more information, please see the ‘Freedom and choice’ section.
How can One Financial Solutions help you?
One Financial Solutions is here to help you. We’ll work with you, assess your current circumstances, review your retirement goals and help you put in place a pension strategy to meet them, ensuring that having a ‘financially secure and comfortable retirement’ isn’t something that’s left to chance.
We’ll assess the value of your State Pension and make sure you receive everything you’re entitled to. We’ll review any workplace and private pensions you may have and recommend any changes we feel are beneficial. If you need a pension scheme we’ll find one for you and, as a truly independent firm of financial advisers, we’ll select one from the entire market and make sure it’s the best one for you.
So, if you’re looking for specific help about any aspect of your pension or just want advice on the subject, please call us on 020 3714 9565 or ask us to call you by sending an email to firstname.lastname@example.org.