It’s bring your dog to work day, so, the natural thing to do is write about pensions.
As a nation of dog lovers (I have 2 dogs of my own) we need to share some of that love with your pension. More of us have pensions than dogs and much like our hairy friends they need a bit of TLC to get the most out of them.
Below are some parallels between dog ownership and your pension (some are better than others).
Feeding your dog – Contributions
The number one factor that increases the value of your pension fund is how much you feed it.
- Are you getting the most out of your contribution structure in your workplace pension?
- If you pay in more, does your employer increase their contribution?
Feeding your dog the right food – Tax Relief
Are you maximising tax relief available to you based on your personal circumstances:
- Have you claimed any tax due back from HMRC?
- Does your employer give you the option to save by salary exchange?
- Are you using any higher rate tax relief you might be entitled to?
- Can you reduce your salary for tax purposes and qualify for child benefit?
- Higher earners, can you get some of your personal allowance back by increasing your contribution?
Treats – Increasing Contributions
Think about small annual increases from 1% each year, then you are not having to play catch up years later making larger contributions. This can be done around pay reviews, so you don’t notice the increase.
- If you have been promoted, is this a good time to make an increase before you get used to the higher salary?
- Finished paying off a loan or mortgage, childcare costs finished or supporting children through university. Could some of that extra pay be directed into your pension?
The earlier you can make small increases the bigger the difference you make, as well as benefiting from compound growth.
Vet Bills – Charges
Ever thought how pension providers get paid?
Well they take a small percentage charge from your fund, typically known as an Annual Management Charge (AMC). Workplace pensions are capped at 0.75% but charges can often be a lot lower than this. The lower the charge taken from your pot, then (all things being equal) the better it can be for you as an investor. So, it’s a worthwhile exercise finding out what you are being charged.
If you have multiple pension pots you should consider consolidating some of your pensions into the one who charges you the lowest AMC.
It’s important to stress that there are other factors to consider as well as charges. For example, you may have enhanced tax free cash or a guaranteed income level and these may be lost should you transfer. Knowing what you are being charged is a good starting point however you should always seek advice from a qualified financial adviser if unsure about any aspects of your pensions.
Personal pensions are not bound by the charge cap. So if you contracted out of SERPS in the 90’s when some fellow in a suit came knocking on your door, you may have a much higher charge in place.
Do you have too many dogs? – Transfers
I am clutching at straws a bit here!
Following on from reviewing charges you may look to consider consolidating some of your pensions. Start looking at those charges but find out what type of pension you have as not all pensions are the same breed.
- Are there any special features or guarantees you would lose by transferring?
- Or any penalties that you would incur by transferring away?
Once you know this you are in a far better place to consider consolidating your pensions. You can use your pension provider website to exercise a non-advised / execution only transfer or you can seek some financial advice. A bit of careful handling is needed here to make sure you don’t get a surprise nip or bite!
Walk your dog – Reviewing investments
Take a look where your pension is invested;
- Does it match your risk profile?
- Default funds often take a balanced risk approach, but do you want to take more or less risk?
- Thinking about where a fund is invested, does this align with your ethical or religious beliefs?
- Do you want to take an active approach to where your money is invested?
There are a variety of different assets and funds available within some pension plans, however some do not have as much choice. It’s important to make sure you’re armed with all the info on your breed.
Teach your dog tricks – Pension provider tools
Pension providers’ online tools and apps are a great way to engage with your pension, which have vastly improved in recent years. You can find out how much you have saved and where it is invested. If your employer is paying your contributions on time (22nd of the following month is the statutory deadline FYI), run a forecast of how much you might get in retirement. Switch funds, start the process of a non-advised transfer or update your beneficiaries.
Responsible dog owner – Environmental Social Governance (ESG)
ESG as a term is becoming a more familiar to the mainstream. But did you know your pension fund may be integrating ESG factors into the default fund? ESG criteria is a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.
- Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change.
- Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
- Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
You may choose a from a range of socially responsible, ethical, sustainable or impact funds that are becoming ever more available to invest in within your pension.
Replace your dog with a cat – De-Risking
As you approach the home straight of retirement, your default fund may start to de-risk. This is to reduce exposure to riskier assets as you get closer to taking your benefits. But do you know when this kicks in and what retirement option your investment strategy is de-risking towards? E.g. annuity, drawdown, or cash? Is this what you plan to do? This is important as you can change this strategy with some providers. I also have a cat who requires a lot less attention and in my experience is lower risk than two dogs.
Dog trainer – Guidance / Financial Planning
Having had a dog trainer with two disobedient puppies I am an advocate for taking professional guidance when it is needed.
Pension options at retirement are complex. All the more so since ‘pension freedoms’ revolutionised how people can use their pension savings to fund retirement. But that flexibility comes with increased risks of harms or poorly informed decisions. When working with an employer, we at Broadstone often offer 1-2-1 guidance sessions to help people get the most out of their pension and retirement planning. This is something that employees value very highly as part of a Financial Wellbeing strategy and really improves retirement outcomes for members.
When appropriate we can refer people to our Financial Planning Team, or signpost them to speak to their own adviser. Therefore, utilising advice vouchers that can be employer supported and make sure that people can get the advice they need from a trusted source.
If you can’t remember the last time your pension got some attention, it might be time to clip on the lead and take it for a little walk.
Speak to Broadstone about how this might translate and apply to your employee benefit strategy.