Now you’re clearer on where you’re going, you need to just stop and take stock of where you are now and really understand what provision you’ve already made towards our goal of financial independence.
Most of us amass all kinds of pensions and investments over our working lives, and the majority of us are not intentional enough about staying on top of things and keeping them tidy as we go along. Before we can move forward, we need to get current on our provision for our retirement – let’s get practical!
Everything You Need to KNOW
You Probably Have More Stuff Than You Think
It’s so easy to lose track of our plans and pensions and investments over time. By the time most of us are 50 years old, we’ve probably had anywhere between five and ten jobs. Each of those probably had some kind of pension scheme attached. Maybe we have investment accounts here and there, some money our Great Aunt put aside for us, and who knows what else?
And if you’re a couple you can multiply this complexity by two, at least! Some of us are better than others at keeping track of this stuff, but if you haven’t been great up to now, it’s time to get with the programme.
Simple is Best
There is an assumption in some quarters that complex financial affairs are some kind of badge of honour. I have met clients with an insanely complicated set of financial arrangements. These range from multiple, regular savings accounts with money being shifted around each month to capture a slightly higher interest rate, all the way up to completely unnecessary SSAS pensions, which are particularly popular with property investors in some quarters.
People come to me with spreadsheets with so many lines on them that it can be hard to see what’s where. But those same people get concerned when I start talking about consolidation and simplification.
Let me make it clear. I see no reason why most people need any more than one pension pot and one investment account. There are exceptions to this of course. One is where the numbers are very large and then yes, I can see the advantage in some diversification.
The other is where there are old plans with unusual benefits, and so they have been retained. If you’re a high earner and there are advantages to investment like VCTs and EISs then you may have some of these too.
DB pensions don’t apply of course – if you’re lucky enough to have one DB scheme, then that’s a valuable benefit. And if you have more than one, even more so. But one pension fund and one investment account is generally enough for us mortals.
And yet people persist in opening accounts here, there and everywhere. It just makes life hard to manage; certainly, harder than it needs to be. As you approach retirement, it will generally serve you well to simplify.
A Question to Keep in Mind
A really important question to consider as you look at each of your plans is this: Is this the best place for this money? Simply, ‘best’ means is the current home for this money the most cost-effective way of achieving what I need to achieve?
Let’s take a pension fund as an example. If that pension fund doesn’t allow for flexible drawdown, then it probably isn’t going to serve you well into retirement – you’re going to need to shift it at some point, so why not now?
If your pension fund does allow Flexi-access drawdown, and you have another pension which also does, ask yourself which is the lowest-charging pot? Cheap isn’t always best however. If the cheapest option doesn’t offer you the investment options that you want, then maybe the cheaper pot should be combined with the more expensive, but more full-featured one. Best, then, means best for you and your circumstances.
Right, we'll keep on the theme of ‘getting current' when we look at reviewing pensions.
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