There’s a scenario that we encounter from time to time. A person comes to us to talk about planning for their retirement, and one of our starting questions is always, “What pension planning have you done so far”? Sometimes the answer is that this is a new journey for them, while for others their situation might be straightforward and they’ve simply been part of a single pension scheme with their employer so far.
But sometimes, the situation is quite different. Out comes a shoebox with lots of policies and pieces of paper in it! The client might have started and stopped numerous policies over the years and have ended up with lots of very small pension pots. Sometimes it’s a real mess, and often an expensive one too as lots of policies may result in higher charges than are necessary. While these clients might have lots of policies, often they don’t amount to much when added together and they are certainly not backed up by a strategic retirement plan.
Now we’re not saying this is always a mistake. Sometimes multiple policies are required, for instance where a client has multiple income sources. The key point is that they are part of a cohesive retirement strategy that is carefully thought out and planned.
But back to the scenario of where there is no strategy – people have multiple policies because maybe they were getting advice from different people or had simply forgotten about previous policies.
So, what do we do?
We start with a plan when talking to clients about their retirement. When we know what you are trying to achieve in terms of your retirement, then we can identify what policies are required. At this stage, we will look at the opportunity to consolidate the policies into one or a smaller number of policies – if it makes sense to do so. Here are a few reasons why.
Having small pensions all over the place is cumbersome and more difficult to work with. It is not as easy to get an overall view of your situation. As we help you plan for your retirement, we consider what your desired retirement looks like, how much you need to save, the best structures to use and the optimal investment approach.
Once all of this is clear, we decide what is best for you in terms of policies going forwards. It’s not about what you have in place historically, we’re interested in what you need in the future to help you achieve your retirement goals. If having all of your existing pensions in place makes perfect sense – then we leave them alone. If not though, we’ll suggest a better approach that may mean consolidating some of your pensions. It all comes back to the plan.
The costs you incur when saving for your retirement are a really important factor. Sometimes less policies mean lower charges. This can be through fewer “flat fees” that apply to each policy or through higher investment allocations as a result of a higher, consolidated investment amount. While these fees might appear small, over time they can really add up and reducing them can make a real difference to your retirement outcomes.
Consolidation of policies can result in a more agile investment approach. It’s much easier to tweak your investment approach if you’ve a single policy, as opposed to lots of small policies.
Have you lots of polices hidden away? Now might be the time to bring that shoebox to us!
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