CONSOLIDATION OF PENSION BENEFITS - IS IT A GOOD IDEA?
Before addressing this question it is important to understand that there are two fundamental types of pension benefit:
Final Salary or Defined Benefit
In simple terms, the benefit is guaranteed and based on the employee’s service period and salary at the date of leaving.
Money Purchase or Defined Contribution
The benefit is not guaranteed and is dependent on the value of a pension fund which you will have built up over your working life and the annuity rate applicable on the day you retire. This is the percentage applied to the fund in converting it into a lifetime income which can be affected by several economic factors such as inflation and interest rates and the impact of these factors on gilt yields.
Defined benefit pension benefits are attractive in that the benefits at retirement are guaranteed and often indexed in payment to keep pace with the effect of inflation. However, you need to know that your scheme is solvent and able to honour the promises of benefits . Great care must be taken in deciding whether or not to transfer out of this type of scheme. They are very expensive to fund and are now only offered by a few large companies with many thousands of employees and by employers in the public sector.
With defined contribution plans, a motive for consolidation is that a person may have built up pension benefits from various periods of employment but they are not sure exactly where they are, how the money is being invested, how much it is costing to manage them, what they are worth now and what they might be worth in the future.
We specialise in giving advice on and, if appropriate, implementing the consolidation of defined contribution pension plans so that all your pension funds can be brought together under one modern plan which will give you all the flexibility you will need as to how and when you take the benefits.
The consolidation process involves:
Ascertaining where all the benefits are.
Valuing the funds
Obtaining details of charges
Calculating what the benefits might be if the money is left where it is.
Assessing your attitude to investment risk
Calculating what the benefits might be if all the funds are consolidated under one new plan
Submitting a detailed report to the client
Implementing the transfers if you would be better off b y so doing
The advantages of consolidating your pension benefits into a modern plan with transparent charges, on line reporting and fund switching options for a full range of investment funds from numerous fund management groups might be:
All your funds are invested in one plan and so are easier to keep track of
You have a great deal of flexibility as to when and how you access your benefits
You have access to low, medium and high risk pension funds from a wide range of leading investment managers, not just one insurance company
You can monitor the value and performance of your pension fund via the internet
However, the running costs of a simpler plan might well be less, so we will always also consider that option as well and allow you to compare the pros and cons.
The consolidation of several pension funds can involve a considerable amount of work. Ethos Financial Management Ltd uses the latest software tools where we can to keep down our costs and we will always quote you a fee in advance and get your agreement before proceeding.