Pension Checklist: 3 Things You Need To Know

Pension checklist: 3 things you need to know

The last 3 weeks of the WealthTalk podcast have been focused on the 2nd pillar of wealth, which is Pensions.

I believe that pensions are the most over-looked and under-valued asset of all 7 pillars.

It’s true that the word ‘pensions’ isn’t the most exciting topic when it comes to wealth-building, however, it is where people rely on putting their money in order to create their future retirement wealth …and there are some big mistakes that I see.

The biggest one being that most people simply ignore it, ‘hoping’ that things will turn out for the best. And that’s a big risk to take.

This post is written to help you look at your current relationship with your personal pension – which is most likely attached to your current or former employer.

However, it’s worth highlighting that state pensions continue to be pushed further and further away from reach, forcing those who will be relying on this to cover their needs in retirement to continue working close to, if not into their 70’s.

The state pension age is currently 65 for men. It’s gradually increasing for women from 60 to 65.

There are more changes planned. From 2019, the State Pension age will increase for both men and women to reach 66 by October 2020.

The Government is planning further increases, which will raise the State Pension age from 66 to 67 between 2026 and 2028. [Source: ageuk.org.uk]

Action #1: Might you have a lost pension?

In episode 017 of my podcast, WealthTalk, we discussed a staggering statistic that 1.6 million lost pensions pots worth nearly £20 billion could remain unclaimed according to latest research from the PPI (Pensions Policy Institute).

Do you want the good news? The process of finding out is really simple.

If you listen to this podcast episode you’ll hear from three members of the WealthBuilders community who share their story of how they were able to trace lost pension money, with a combined total of over £400,000 being rediscovered – now accessible and ready to put to work within one of the other 6 pillars.

I’d strongly encourage you to think back through every employer you have ever had and make certain that you’re not forgetting about any unclaimed pension pots.

You’ll hear just how simple the process of contacting your old employers can be by listening to the podcast below, or you can visit the Department for Work and Pensions and use their new service to help you find a lost pension.


Action #2: Understand the difference between a SIPP and a SSAS pension

Many people I meet refer to a SIPP [Self Invested Personal Pension] and a SSAS [Small Self Administered Scheme] in the same sentence as if they are the same thing.

A SIPP is a product, and therefore somebody else controls where the money is invested. You might choose the specific funds, but the point is that your only option is the stock market, and sometimes commercial property.

So for example, a holder of a SIPP wouldn’t be allowed to invest in property, they wouldn’t be able to join forces and collaborate, they invariably won’t be able to get leverage [the key to building wealth]. So in many ways a SIPP is actually quite restrictive, but it sounds better, because it says ‘self invested’.

The SIPP is a product, so you buy it off the shelf. A SSAS you have to create and also you have to be a business owner. That’s why we also refer to a SSAS sometimes as The Directors Pension. A SSAS is something which you take control of, and therefore it should be treated as a business.

Creating a SSAS can be transformative. Listen to episode 018 of WealthTalk below to hear three members of the WealthBuilders Community share how they have each created a SSAS and utilised their funds in different ways to help them transition from corporate jobs to setting up their own businesses.

If you’d like to assess whether you are eligible for a SSAS, you can visit our SSAS Eligibility page and answer a few short questions to find out more.

”Never let a month go by without taking some action to build your wealth”

Kevin Whelan

Action #3: Look to see if you can reduce the costs and charges of your current pension

When I work with clients one of the first things we do is to look at the charges, performance and risk of their current pension and see if we can make some immediate savings. I call this process a pension ‘CPR’, as we’re seeing if we can bring the pension back to life!

Let’s look at an example, and let’s give them a name – Angela.

If the value of Angela’s pension was £400,000, and she was in a typical SIPP, but she invests in funds, because there’s no other choice, then she might be paying between 1.5% and 2% overall. Let’s say it’s 2%, because that’s the average.

That’s £8,000 pounds in fees. I’m not sure about you, but that sounds like a lot to be paying someone else in fees.

So if Angela decides to draw down 4% of her pension then the fees are 50%!

In comparison,  a SSAS would be £1500 to £1600, because it’s not about funds under management it’s just about the administration, and providing the reporting to the Inland Revenue. So a SSAS is usually substantially cheaper over the long term.

We’ve created a SSAS MiniSite with more detailed information if you’re interested in learning more.

So …now it’s time for you to take some action!

And if after doing so, you have a positive story to tell – then be sure to post in the comments below so I can share on a future episode of the podcast to help inspire others.

If you’d like to listen to Kevin Whelan and Christian Rodwell summarising Pillar 2 [Pensions] then tune in below to Episode 019 of WealthTalk.

And don’t forget to subscribe so you never miss a new episode!